Question

John and Steve are roommates at Mercy College. They are planning to have a party this coming weekend and need to go shopping for munchies. They know all of their friends like nacho cheese flavored tortilla chips, so that is the only type of munchie they plan to buy. After pooling their cash, they take $18 and head out to the nearest grocery store. Walking down the chip aisle, they fill their cart with 6 bags of Tostada brand chips at $3 per 14-ounce bag. Continuing down the chip aisle, they see Durango brand chips are available at $2 per 14-ounce bag, so they put all of the Tostada chips back and instead purchase 9 bags of Durango chips. Is John and Steve’s behavior consistent with “the law of demand?” Explain. If they hadn’t changed their minds, would they have violated the law of demand?

Answer 1

The law of demand states that price and quantity demanded of a good are inversely related. So when price is lower (higher), quantity demanded is higher (lower). In this case, when Durango offered the same quantity of chips (14-ounce) at a lower price ($2 < $3), John and Steve completely switched to Durango, which is consistent with law of demand, on basis of the principle of "more is better".

If they hadn't changed their minds, they would violate the "more is better" principle since by paying $18, they could buy more of Durango but they chose to buy less of Tostada. This would be a "less is better" principle which would have violated the law of demand.