Multiple Choice
In microeconomics, consumer demand is best defined as which of the following?
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3. The Market Forces of Supply and Demand
The Demand Curve
Multiple Choice
Which statement best describes the law of demand for a typical good, holding all other factors constant (ceteris paribus)?
A
A change in demand (a shift of the demand curve) is caused only by a change in the good’s own price.
B
As price increases, quantity demanded decreases, and as price decreases, quantity demanded increases.
C
As price increases, quantity demanded increases, and as price decreases, quantity demanded decreases.
D
As consumer income increases, quantity demanded decreases, holding price constant.
Verified step by step guidance1
Understand the law of demand: It states that, ceteris paribus (holding all other factors constant), there is an inverse relationship between the price of a good and the quantity demanded.
Identify the difference between 'change in quantity demanded' and 'change in demand': A change in quantity demanded refers to movement along the demand curve caused by a change in the good's own price, while a change in demand refers to a shift of the entire demand curve caused by factors other than the good's price (like income, tastes, or prices of related goods).
Analyze the options given: The correct statement should reflect that when the price of the good increases, the quantity demanded decreases, and when the price decreases, the quantity demanded increases, holding other factors constant.
Eliminate incorrect options: Statements that confuse change in demand with change in quantity demanded or that suggest a direct relationship between price and quantity demanded are incorrect.
Conclude that the best description of the law of demand is: 'As price increases, quantity demanded decreases, and as price decreases, quantity demanded increases.'
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