Question

The price of producing a $4 chocolate bar goes up, so the seller of the chocolate bar raises the price to $5. A student describes the effect on the demand for the chocolate, saying, "Since the price goes up, the quantity demanded will go up." Evaluate the student's answer.

Answer 1

This is incorrect (what the student is saying) obviously the quantity should be bigger to be worth the $5 dollars you are spending. But what it is saying is since a chocolate bar once sold for $4 is taking more money to produce they need to raise the price so that they earn money as well. If they are spending all the money that they earn from that $4 chocolate bar then they earn nothing and business goes down.