A theory asserts that consumers will purchase less of a good at higher prices than they will at lower prices, ceteris paribus. 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

A theory asserts that consumers will purchase less of a good at higher prices than they will at lower prices, ceteris paribus. 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.

Quizplus · Accepted Answer

The apparent conflict between the theory and data can be explained by the fact that other factors such as income growth and changes in consumer preferences could have influenced the demand for cars during the 1990s. Therefore, the ceteris paribus assumption may not have been valid, leading to the observed increase in car purchases despite higher prices.

A Theory Asserts That Consumers Will Purchase Less of a Good