Question

"The price of T-shirts keeps rising and rising, and people keep buying more and more. T-shirts must have an upwardsloping demand curve." Identify the error.

Short answer

The error in the statement is the assumption that T-shirts have an 'upward sloping demand curve'. This contradicts the Law of Demand, which postulates a downward-sloping demand curve, showing an inverse relationship between price and quantity demanded. Other factors (not price changes) may be at play causing more T-shirts to be purchased as the price rises.

Step-by-step solution

Understand the Law of Demand

The first step is to understand the Law of Demand in economics, which states that, all else being equal, as the price of a product increases (↑), quantity demanded falls (↓); likewise, as the price of a product decreases (↓), quantity demanded increases (↑). This negative relationship between price and quantity demanded is often referred to as the demand curve.

Evaluate the Scenario

Based on the scenario given in the exercise – 'the price of T-shirts keeps rising and rising, and people keep buying more and more' – this indicates a positive relationship between price and quantity demanded. But, this contradicts the Law of Demand and the typical shape of the demand curve.

Identify the Error

The error lies in the assumption that T-shirts have an 'upward sloping demand curve'. This goes against the Law of Demand. What might be happening here is misunderstanding or not considering other factors that could influence demand, for instance, changes in consumers' income, preferences, or the price of related goods.