A Level Economics AQA Practice Exam

What does the Law of Demand state?

1. Consumers will buy more of a good when its price is lower

2. Producers will supply more of a good as its price decreases

3. Equilibrium price is set by demand exceeding supply

4. Quantity supplied is always equal to quantity demanded

The correct answer is: Consumers will buy more of a good when its price is lower

The Law of Demand posits that consumers tend to purchase more of a good when its price decreases, reflecting an inverse relationship between price and quantity demanded. This principle is grounded in the idea that as prices fall, the opportunity cost of purchasing the good also decreases, making it more attractive to buyers. Additionally, lower prices may encourage new consumers to enter the market, further increasing the quantity demanded. Demand is typically represented by a downward-sloping curve on a graph, illustrating that as price decreases, the quantity demanded increases. Understanding this law is crucial for analyzing consumer behavior and market dynamics. The other options do not accurately capture the essence of the Law of Demand; they pertain to supply-side dynamics or misinterpret market equilibrium principles. Thus, recognizing that consumers react positively to lower prices is central to applying the Law of Demand effectively in economic analysis.