The law of demand is illustrated by a demand curve that is:
Choose one answer.
a. upward-sloping.
b. vertical.
c. horizontal.
d. downward-sloping.
The Correct Answer and Explanation is :
The correct answer is d. downward-sloping.
Explanation:
The law of demand states that, all else being equal, as the price of a good or service decreases, the quantity demanded for that good or service increases. Similarly, as the price increases, the quantity demanded decreases. This inverse relationship is a fundamental concept in microeconomics, and it is graphically represented by a downward-sloping demand curve.
The demand curve is typically plotted on a graph with price on the vertical axis (y-axis) and quantity demanded on the horizontal axis (x-axis). The downward slope of the curve reflects the negative relationship between price and quantity demanded. Here’s why:
- Substitution Effect: When the price of a good falls, consumers may substitute it for other, more expensive goods. For instance, if the price of a specific brand of coffee decreases, consumers may buy more of it instead of other, higher-priced coffee brands, increasing the quantity demanded for the cheaper brand.
- Income Effect: A price reduction effectively increases the consumer’s purchasing power, as they can now buy more of the good with the same amount of money. This increase in real income allows them to afford more of the good at the lower price, further increasing the quantity demanded.
Both these effects contribute to the downward slope of the demand curve. The demand curve shows that lower prices make goods more attractive to consumers, thus increasing demand. Conversely, as prices rise, consumers are less willing or able to purchase the good, leading to a decrease in demand.
In real-world examples, the law of demand is observable across many products. For instance, when the price of gasoline decreases, consumers are generally more likely to purchase more fuel for their vehicles or use their cars more often, showing a positive response to the price decrease.