Question

Which of the following demonstrates the law of demand?

1) Increase in price leads to a decrease in demand
2) Increase in price leads to an increase in demand
3) Decrease in price leads to a decrease in demand
4) Decrease in price leads to an increase in demand

Answer 1

Option 4, 'Decrease in price leads to an increase in demand,' correctly demonstrates the law of demand, which states that a higher price reduces quantity demanded and a lower price increases it.

Step-by-step explanation:

The question at hand is identifying which option demonstrates the law of demand. The law of demand represents the common relationship between price and quantity demanded, indicating that a higher price will lead to a lower quantity demanded, while all other factors are kept constant. Hence, we are looking for an option that reflects this relationship.

Reviewing the given options, the one that aligns with the law of demand is:

1. Decrease in price leads to an increase in demand

This is because the law of demand suggests that when prices go down, the quantity demanded generally increases. Conversely, when prices go up, the quantity demanded tends to decrease due to the higher opportunity cost associated with purchasing the good, leading consumers to forego buying it in favor of something else they value more.