Economics and Personal Finance Practice Exam

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Question: 1 / 400

What does the law of demand state?

As prices increase, the quantity demanded decreases

As prices decrease, the quantity supplied decreases

All else being equal, as the price of a good decreases, the quantity demanded increases

The law of demand is a fundamental principle in economics that describes the relationship between price and the quantity demanded of a good or service. It states that, all else being equal, as the price of a good decreases, consumers will generally demand a greater quantity of that good. This relationship is often depicted as a downward-sloping demand curve, where lower prices lead to higher quantities demanded.

This principle is grounded in the idea that consumers tend to purchase more of a product as it becomes less expensive, which can be attributed to the substitution effect (where consumers may substitute cheaper goods for more expensive ones) and the income effect (where consumers feel wealthier when prices fall, allowing them to purchase more). Therefore, the correct answer encapsulates this relationship perfectly by highlighting the inverse relationship between price and quantity demanded.

Economics and Personal Finance Practice Exam

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