In the context of the demand curve, how does the ceteris paribus assumption relate to demand?

• A. It means that the supply curve is held constant while demand changes.
• B. It means that all goods are normal goods, so demand always rises when income rises.
• C. It means that the quantity demanded is held constant while the price changes.
• D. It means that when analyzing how the quantity demanded changes with price, all other determinants of demand (such as income and tastes) are held constant.

Answer: (D)

Verified step by step guidance

1. Understand that the ceteris paribus assumption means 'all other things being equal' or 'holding other factors constant.'
2. Recognize that when analyzing the demand curve, we focus on the relationship between the price of a good and the quantity demanded.
3. Apply the ceteris paribus assumption by holding all other determinants of demand constant, such as consumer income, tastes, prices of related goods, and expectations.
4. This allows us to isolate the effect of price changes on the quantity demanded without interference from other variables.
5. Therefore, the demand curve shows how quantity demanded changes as price changes, assuming all other factors remain unchanged.