A Level Economics AQA Practice Exam

What is the definition of extension of demand?

1. Increase in demand due to an increase in income

2. Decrease in demand because of higher prices

3. Increase in quantity demanded as the price falls

4. Decrease in quantity demanded due to scarcity

The correct answer is: Increase in quantity demanded as the price falls

The correct definition of extension of demand refers to an increase in the quantity demanded of a good or service that occurs when its price decreases. This concept is rooted in the law of demand, which states that, all else being equal, a lower price leads to a higher quantity demanded. When consumers observe a drop in price, they are typically more inclined to purchase more of that product, resulting in an extension along the demand curve. This is distinct from an increase in demand, which would indicate a shift of the entire demand curve due to factors like income changes or consumer preferences. The other potential answers reflect different economic concepts and do not pertain to the specific situation of an extension of demand. For instance, an increase in demand due to an increase in income describes a situation where the whole demand curve shifts rightward rather than moving along the curve. Similarly, a decrease in demand due to higher prices relates to a movement in the opposite direction, indicating a contraction of demand. Lastly, a decrease in quantity demanded due to scarcity does not align with the dynamic described for extension, as scarcity typically leads to an increase in prices, thus reducing quantity demanded, rather than showing the effect of falling prices.