The Law of Demand in microeconomics is based on which basic behavioural idea about how people change the quantity they buy of a good when the price of that good changes, assuming other factors remain constant?

Introduction / Context:
The Law of Demand is one of the most fundamental principles in microeconomics. It describes the typical inverse relationship between the price of a good and the quantity demanded of that good, holding all other factors constant (ceteris paribus). Understanding this behavioural relationship is essential for drawing demand curves, analysing market equilibrium, and interpreting consumer responses to price changes.

Given Data / Assumptions:

• The focus is on how quantity demanded changes when the price of a good changes.
• Other factors like income, tastes, and prices of related goods are assumed to remain constant.
• The options include statements about income changes, price changes, spending all money, wanting more of everything, and quality changes.
• We assume standard rational consumer behaviour in a competitive market.

Concept / Approach:
The Law of Demand states that, ceteris paribus, the quantity demanded of a good falls when its price rises and rises when its price falls. This inverse relationship arises due to substitution and income effects: as a good becomes cheaper, consumers substitute it for relatively more expensive goods, and the lower price effectively increases real income, allowing them to buy more. The law does not say that people buy more as income rises irrespective of price or that they always spend all their money. It focuses specifically on the price quantity demanded relationship.

Step-by-Step Solution:
Step 1: Identify that the law of demand is a statement about price and quantity demanded, not about income or quality directly.Step 2: Recall the standard wording: other things remaining the same, the quantity demanded of a good increases when its price falls and decreases when its price rises.Step 3: Among the options, the statement that people buy more of a good as the price of the good falls correctly captures this inverse relationship.Step 4: A statement about buying more as income increases describes income effects but belongs to the classification of normal and inferior goods, not the law of demand itself.Step 5: Statements saying that people always spend all their money or always want more of everything are too vague and do not express the precise relationship.Step 6: A statement about buying less as quality improves contradicts normal consumer behaviour and is not linked to the law of demand.Step 7: Therefore, the correct formulation is that people buy more of a good as its price falls.

Verification / Alternative check:
Graphically, the law of demand is represented by a downward sloping demand curve in the price quantity plane. At lower prices, the curve shows higher quantities demanded; at higher prices, it shows lower quantities demanded. This visual representation matches the idea that people buy more when prices fall. Everyday examples, such as higher petrol consumption when fuel prices drop or increased sale of items in a discount sale, also illustrate this relationship and confirm the law.

Why Other Options Are Wrong:
People buy more of a good as their income increases, regardless of its price: This describes the effect of income changes on demand and is related to normal goods, not the pure price demand relationship.

People will spend all of their money on some good or the other: This is a very general statement about consumption and does not directly express the price quantity relationship.

People always want more of everything, even if they have no money to buy anything: Desire alone does not constitute demand; demand requires purchasing power and willingness to buy.

People buy less of a good as its quality improves: This is contrary to usual behaviour; higher quality at the same price often increases demand, other things equal.

Common Pitfalls:
Some students confuse changes in demand due to income or tastes with movements along the demand curve due to price changes. The law of demand deals with movements along the curve when price changes, not shifts of the curve due to other factors. Remembering the phrase ceteris paribus and focusing on the price quantity inverse relationship helps keep the concept clear in exam situations.

Final Answer:
The Law of Demand is based on the idea that people buy more of a good as the price of that good falls, other things being equal.