Why do economists refer to the 'law of demand' when describing the relationship between price and quantity demanded?

• A. Because it is a legal requirement for firms to follow when setting prices.
• B. Because it only applies to luxury goods and not to necessities.
• C. Because it describes a consistent and predictable relationship observed in real-world markets.
• D. Because it is a mathematical formula that determines market equilibrium.

Answer: (C)

Verified step by step guidance

1. Understand that the 'law of demand' is a fundamental principle in microeconomics describing how consumers behave in response to price changes.
2. Recognize that the law states: as the price of a good increases, the quantity demanded decreases, and vice versa, holding other factors constant.
3. Note that this relationship is observed consistently across many markets and goods, making it a reliable behavioral pattern rather than a legal rule or a formula.
4. Distinguish the law of demand from legal requirements or mathematical formulas; it is an empirical observation about consumer behavior, not a regulation or an equation.
5. Conclude that economists refer to the 'law of demand' because it captures a predictable and consistent relationship between price and quantity demanded seen in real-world markets.