Question

True or False:
The basic economic theory of supply and demand suggests that when price drops, consumers will buy more and thus generate stronger demand.

Answer 1

Answer: True.

Explanation:

Here, the statement is related to the economic theory of demand, not with economic theory of supply. So, we are considering only law of demand.

The statement is true according to the economic theory of demand.

Economic theory of demand states that other things remains constant, increase in the price of a commodity results in lower demand for that commodity and vice versa. There is an inverse relationship between the price and demand of a commodity.

Economic theory of supply states that other things remains constant, increase in the price of a commodity results in higher supply for that commodity and vice versa. There is a direct relationship between the price and supply for a commodity.