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Tuesday, June 16, 2009

Demand curves are downward sloping

Some politicians refuse to acknowledge that demand curves are downward sloping. This refusal has led government to propose and enact any number of bad policies. However strong our econometric models are in showing that, indeed, it seems that demand curves are downward sloping, sometimes a picture is more powerful.

From this week's Business Week:

So, as interest rates increase (the price), the number of mortgage applications (the quantity) declines. In other words, the law of demand seems to hold without all the econometric baggage to get in the way.

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