Difficulty: Easy
Correct Answer: As the price increases, the quantity demanded will decrease
Explanation:
Introduction / Context:
The law of demand is one of the most fundamental ideas in microeconomics. It describes the relationship between the price of a good and the quantity that consumers are willing and able to buy, holding all other factors constant. Almost every introductory economics course begins with this concept, and examination questions frequently test whether you can restate the law accurately and distinguish it from statements about shifts in demand.
Given Data / Assumptions:
Concept / Approach:
The law of demand states that, other things equal, there is an inverse relationship between the price of a good and the quantity demanded. When the price rises, consumers typically buy less of that good, and when the price falls, they buy more. This inverse relationship leads to a downward sloping demand curve when quantity demanded is plotted horizontally and price is plotted vertically. The law of demand does not claim that higher prices cause the demand curve itself to shift, only that they cause movements along the curve. Therefore, the correct statement under the law of demand is that as the price increases, the quantity demanded will decrease.
Step-by-Step Solution:
Step 1: Recall the formal statement of the law of demand: other things equal, the quantity of a good demanded falls when the price rises and rises when the price falls.Step 2: Look at the options and find those that describe an inverse relation between price and quantity demanded.Step 3: Identify option A, which clearly states that as price increases, quantity demanded decreases.Step 4: Confirm that the other options either describe a direct relationship, or incorrectly suggest that a change in price shifts the entire demand curve, which is not what the law of demand states.
Verification / Alternative check:
You can verify the law of demand through a simple real life example. Consider a common product such as tea. If the price of tea doubles, many consumers will reduce their consumption or switch to substitutes such as coffee. If the price falls sharply, more people may drink tea or buy larger quantities. This behaviour reflects the inverse relationship between price and quantity demanded. Graphically, you can draw a downward sloping demand curve and observe that moving up along the curve corresponds to higher price and lower quantity, which is exactly what the law of demand describes.
Why Other Options Are Wrong:
Option B is wrong because it claims that higher prices lead to higher quantity demanded, which would imply an upward sloping demand curve and contradicts the law of demand. Option C is incorrect because a fall in price causes a movement along the demand curve, not a shift of the entire curve to the right. Option D is also incorrect because a rise in price does not by itself cause the demand curve to shift left; it only moves the consumer to a different point on the same curve. Shifts occur due to factors like changes in income, tastes or prices of related goods, not due to price changes of the good itself.
Common Pitfalls:
Students sometimes confuse movements along the demand curve with shifts of the curve. They may think that any change in price shifts the demand curve, which is not correct. Another common mistake is to not pay attention to the phrase other things equal, which is crucial because the law of demand assumes that other determinants of demand remain constant while price changes. To answer such questions correctly, always focus on the inverse price quantity relationship and remember that shifts in the demand curve are caused by non price factors.
Final Answer:
The law of demand states that, other things equal, as the price of a good increases, the quantity demanded will decrease.
Discussion & Comments