A theory asserts that consumers will purchase less of a good at higher prices than they will at lower prices.However, when the average price of cars increased throughout the 1990s, more cars were purchased.Which of the following best explains the apparent conflict between theory and data?
A)The ceteris paribus assumption is valid.
B)It is likely that variables other than the price and quantity of cars demanded were changing.
C)The theory is valid. However, the price and quantity data gathered by researchers was clearly measured incorrectly.
D)The theory must be invalid.

Question

Quizplus · Accepted Answer

The apparent conflict between theory and data suggests that there were other variables at play, such as changes in consumer tastes, preferences, and income levels, that drove the increase in car purchases despite higher prices. Therefore, the ceteris paribus assumption (A) cannot be true, and there is no evidence to suggest that the data was measured incorrectly (C). It is also premature to conclude that the theory is entirely invalid (D) without further investigation into the factors that influenced car demand during the 1990s.

A Theory Asserts That Consumers Will Purchase Less of a Good