A demand curve shows the relationship between:
A) price and quantity demanded.
B) the demand and supply schedules.
C) demand and supply equilibrium.
D) leakages and injections.
E) price and technology.
The correct answer and explanation is:
The correct answer is: A) price and quantity demanded.
A demand curve represents the relationship between the price of a good or service and the quantity of that good or service that consumers are willing to purchase at different price levels. It is typically downward sloping, reflecting the law of demand, which states that as the price of a good or service decreases, the quantity demanded by consumers increases, and vice versa. This relationship holds true under the assumption that other factors influencing demand, such as consumer income, tastes, and the prices of related goods, remain constant.
The demand curve is a graphical representation that helps to visualize how demand changes in response to price fluctuations. It typically shows the price on the vertical axis and the quantity demanded on the horizontal axis. Each point on the demand curve represents the price and corresponding quantity demanded at that price.
The law of demand, which underpins the demand curve, can be explained through the concept of consumer behavior. When the price of a good rises, consumers are less inclined to buy it because they may find alternatives or have limited income to spend on the more expensive good. On the other hand, when the price falls, consumers tend to buy more because the good becomes more affordable or the opportunity cost of buying it decreases.
Shifts in the demand curve can occur due to changes in non-price factors. For example, if consumer income rises, the demand for many goods and services will increase, causing the demand curve to shift to the right. Conversely, if there is a decrease in consumer income, the demand for goods may decrease, causing the demand curve to shift to the left. Thus, while the demand curve shows price and quantity demanded at a specific point, the entire curve can shift based on external factors affecting consumer behavior.