Q:
Which one of the following is not an assumption in the law of demand?
Answer & Explanation
Answer: C) Consumers are affected by demonstration effect
Explanation: There are certain assumptions underlying the law of demand, which are as follows:
i. Assumes that the consumer’s income remains same
ii. Assumes that the preferences of consumer remain same.
iii. Considers that the fashion does not show any changes, because if fashion changes, then people would not purchase the products that are out of fashion.
iv. Assumes that there would be no change in the age structure, size, and sex ratio of population. This is because if population size increases, then the number of buyers increases, which, in turn, affect the demand for a product directly.
v. Restricts the innovation and new varieties of products in the market, which can affect the demand for the existing product.
vi. Restricts changes in the distribution of income.
vii. Avoids any type of change fiscal policies of the government of a nation, which reduces the effect of taxation on the demand of product.
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