Future Business Leader Achievments (FBLA) Economics Practice Exam

What does the law of demand state about consumer behavior when prices change?

1. Consumers purchase less at lower prices

2. Consumers purchase more at higher prices

3. Demand increases as supply decreases

4. Higher prices lead to less willingness to purchase

The correct answer is: Higher prices lead to less willingness to purchase

The law of demand illustrates the inverse relationship between the price of a good and the quantity demanded by consumers. When prices increase, consumers typically become less willing to purchase the product. This is because as prices rise, the good may become less affordable or less valuable in relation to other options available to consumers. Consequently, they may either buy less of that particular good or seek alternatives that fit their budget better. In the context of consumer behavior, higher prices lead to a decrease in quantity demanded, reflecting a fundamental principle of economic theory that the law of demand embodies. This principle is key in understanding market dynamics and helps explain various consumer decisions regarding purchases. By grasping this concept, one can better analyze how market fluctuations affect consumer purchasing behavior.