Future Business Leader Achievments (FBLA) Economics Practice Exam

What economic principle describes the decrease in the demand for a product as its price rises?

1. Law of Supply

2. Law of Demand

3. Law of Equilibrium

4. Law of Scarcity

The correct answer is: Law of Demand

The principle that addresses the decrease in the demand for a product as its price rises is known as the Law of Demand. This law states that there is an inverse relationship between price and quantity demanded. When the price of a good increases, consumers are less likely to purchase it, leading to a reduction in quantity demanded. Conversely, if the price decreases, demand typically increases as consumers find the product more affordable. This concept is grounded in the behavior of consumers and their preferences. High prices may push consumers to seek substitutes or forgo purchase altogether, resulting in lower demand. Understanding this principle is fundamental in economics, as it helps to depict how price changes can influence market dynamics and consumer behavior. Other economic concepts, while important, do not specifically address the relationship between price and demand in this way. The Law of Supply deals with the relationship between price and quantity supplied. The Law of Equilibrium refers to the point where supply and demand meet, and the Law of Scarcity explains the limitations of resources relative to wants. None of these directly reflect the decrease in demand as price rises.