Question 7

The Law of Demand explains the increase in the price of the hat due to its rising popularity.

As the television series boosts the popularity of the hat, more consumers desire to purchase it, leading to an increase in demand. According to the Law of Demand, when demand for a product rises, the price typically increases as well.

A) Law of demand

This option is correct because it directly relates to the scenario where increased popularity leads to higher demand for the hat. As more people want the hat, sellers can raise the price due to the greater willingness of consumers to pay, illustrating how demand affects price.

B) Comparative advantage

This option is incorrect as comparative advantage pertains to the ability of an entity to produce goods at a lower opportunity cost than others. It does not explain price changes related to demand or popularity, making it irrelevant to the situation described.

C) Opportunity cost

This option is also incorrect. Opportunity cost refers to the value of the next best alternative forgone when making a decision. While it is an important economic concept, it does not address the dynamics of price changes associated with an increase in demand due to a popular television series.

D) Multiplier effect

This option is incorrect as well. The multiplier effect refers to the concept where an initial change in spending leads to a more significant overall impact on the economy. It does not specifically explain the immediate relationship between increased popularity and the price of the hat.

Conclusion

The Law of Demand is the definitive explanation for the increase in the price of the hat in this scenario, as it effectively captures the relationship between rising demand and price fluctuations. All other options fail to address the direct impact of consumer preferences on pricing, making them irrelevant to the context presented.