What does the Law of Demand state?
A Price and quantity demanded change in opposite directions
B Price and quantity demanded change in the same direction
C Price and quantity supplied change in opposite directions
D Price and quantity supplied change in the same direction
The correct answer and explanation is:
The correct answer is A: Price and quantity demanded change in opposite directions.
Explanation:
The Law of Demand states that, all else being equal, the quantity demanded of a good or service decreases as its price increases, and conversely, the quantity demanded increases as its price decreases. This relationship demonstrates an inverse or negative correlation between price and demand.
The reasoning behind this is rooted in the basic behavior of consumers in a market. When the price of a good or service rises, it becomes more expensive for consumers, leading many to reduce their purchases or even stop buying the item. On the other hand, when the price of the good or service falls, it becomes more affordable to consumers, which encourages more people to buy it, increasing demand.
For example, imagine the price of a popular brand of shoes increases. Many consumers may decide that the shoes are no longer worth the higher price and either buy a cheaper alternative or forgo the purchase altogether. Conversely, if the price of those shoes drops, more consumers may be willing to buy them, as they represent a better value for the lower price.
This concept is foundational in economics and helps explain how market dynamics work. The law of demand is reflected in demand curves on graphs, where the curve typically slopes downward from left to right. This downward slope indicates that as the price decreases, the quantity demanded increases, and vice versa.
The Law of Demand assumes other factors (such as consumer income, tastes, and the prices of related goods) are constant, so changes in demand due to these other factors are not accounted for in this principle.