Demand increases, causing prices to rise. Higher prices cause demand to fall. Therefore, prices fall back to their original level.
This sentence is wrong. What is wrong with it? If demand increases, wouldn't it stay increased which will not cause the prices to fall back to the original price.
You're correct that the sentence is incorrect. The error lies in the assumption that higher prices always cause demand to fall. While it is true that in some cases higher prices can lead to a decrease in demand, it is not always the case.
When demand increases, it generally leads to an increase in prices. This is because as more people want to purchase a product or service, the available supply may not be able to keep up with the demand. This can result in sellers increasing prices to take advantage of the high demand and potentially maximize their profits.
However, the impact of higher prices on demand is not always straightforward. In certain situations, consumers may be willing to pay higher prices because they perceive the product or service to have more value or because there are no close substitutes available. In such cases, demand may not significantly decrease, or it may decrease by a smaller extent than expected.
It's also worth noting that market dynamics, competition, consumer preferences, and various other factors can influence the relationship between prices and demand. Therefore, it is not accurate to assume that higher prices will always cause demand to fall, leading prices to return to their original level.