Suppose an economist observes the following monthly data on the market price and
ID: 1208634 • Letter: S
Question
Suppose an economist observes the following monthly data on the market price and quantity of potatoes purchased in Geelong during the year 2015:
Month
Jan.
Feb.
Mar.
Apr.
May
Jun.
Price ($ per kilo)
2.99
2.52
2.90
3.15
3.69
3.44
Quantity (tons)
342
357
345
321
300
334
Month
Jul.
Aug.
Sep.
Oct.
Nov.
Dec.
Price($ per kilo)
3.44
4.93
4.84
4.21
1.87
1.51
Quantity (tons)
346
208
233
289
427
475
Based on the data, the economist plots the observations on a graph below with quantity and price on the horizontal and vertical axis respectively. He claims this graph approximates the demand curve (the solid straight line) for potatoes in Geelong for 2015. Do you agree with the economist’s claim? Explain your answer in details.
Month
Jan.
Feb.
Mar.
Apr.
May
Jun.
Price ($ per kilo)
2.99
2.52
2.90
3.15
3.69
3.44
Quantity (tons)
342
357
345
321
300
334
Month
Jul.
Aug.
Sep.
Oct.
Nov.
Dec.
Price($ per kilo)
3.44
4.93
4.84
4.21
1.87
1.51
Quantity (tons)
346
208
233
289
427
475
$6.00 $5.00 $4.00 Price $3.00 $2.00 S0) $1.00 $0.00 (0 100 200 300 400 500 Quantity of potatoes (ton)Explanation / Answer
The claim is correct.
The demand curve for a product shows the quantity demanded of the good at every level of price. Following the law of demand, as price rises (falls), quantity demanded of the good falls (rises), leading to a downward sloping demand curve.
The data table clearly reveals that price and quantity demanded of potatoes are inversely related, as predicted by the law of demand. The curve drawn very closely approximates all data points available. So, it approximates the demand curve.
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