Question
Select all the correct answers. Which statements are true according to the law of demand? An increase in supply leads to an increase in demand. A decrease in supply leads to a decrease in demand. An increase in price leads to a decrease in quantity demanded. A decrease in price leads to an increase in quantity demanded. An increase in price leads to an increase in demand.
Ask by King Luna. in the United States
Feb 04,2025
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Tutor-Verified Answer
Answer
The correct statements according to the Law of Demand are:
- An increase in price leads to a decrease in quantity demanded.
- A decrease in price leads to an increase in quantity demanded.
Solution
According to the **Law of Demand**, all else being equal:
- **When the price of a good increases, the quantity demanded decreases.**
- **When the price of a good decreases, the quantity demanded increases.**
Let's evaluate each statement:
1. **An increase in supply leads to an increase in demand.**
- **Incorrect.** An increase in supply affects the supply side, not the demand side directly. It may lead to a lower equilibrium price, which could then affect quantity demanded, but it does not increase demand itself.
2. **A decrease in supply leads to a decrease in demand.**
- **Incorrect.** Similar to the first statement, a decrease in supply affects the supply side. It might lead to a higher equilibrium price, potentially reducing quantity demanded, but it does not directly decrease demand.
3. **An increase in price leads to a decrease in quantity demanded.**
- **Correct.** This is a direct application of the Law of Demand.
4. **A decrease in price leads to an increase in quantity demanded.**
- **Correct.** This is also a direct application of the Law of Demand.
5. **An increase in price leads to an increase in demand.**
- **Incorrect.** An increase in price leads to a movement **along** the demand curve (a decrease in quantity demanded), not a shift **of** the demand curve (which would indicate a change in demand).
**Correct Statements:**
- **An increase in price leads to a decrease in quantity demanded.**
- **A decrease in price leads to an increase in quantity demanded.**
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Simplify this solution Bonus Knowledge
An increase in price leads to a decrease in quantity demanded is true, reflecting the inverse relationship between price and quantity demanded. Similarly, a decrease in price leads to an increase in quantity demanded, illustrating how consumers are enticed to buy more when prices fall. Understanding these principles is essential for businesses and policymakers alike! For instance, if a tech company raises the price of its gadgets, it might find that fewer customers are willing to buy them. Conversely, if it slashes prices, it could see a frenzy of new customers snapping up products. This illustrates the delicate dance of supply and demand in action!
