Question

Explain the law of demand, and why as price increases quantity demanded decreases; and, as price decreases, quantity demanded increases? If taxes were more progressive, would total output be affected?

Answer 1

Law of demand - law of demand describes an inverse relationship between price and quantity demanded of a commodity of a good.as per this law when price of a good increases then quantity of demand decreases when price of good decreases then quantity demand decreases .

Law of demand explain consumer behavior .when price rises , consumer do not want to purchase same good on additional cost hence it leads to a fall in the demand of that good.when price reduces, consumer want to purchase same good in reduce cost hence it leads to increase in the demand of good.this is consumer natural choice behavior .consumer hesitates to spend more for the good with the fear of going out cash.hence he wants to save money.people will buy less of something when its price rises.they will buy more when its price falls.

If taxes were more progressive it means higher tax rates for the upper income classes and lower tax rates for lower classes income.in that case higher income people have low money to invest and due to lack of investment they have less incetive to work.and result being total output is declined.hence progressive tax reduce total output.as we know higher income class people have higher money.their earning is higher and their investment is also higher.they do more production activity but if taxes is high then they have low income to purchase and investment hence total output is declined.