When the price falls, what happens?

Question

BlackTom AI · Accepted Answer

The law of demand: ceteris paribus, as the price of a good falls, consumers buy more of it — so the quantity demanded increases.

1. Relevant knowledge points and concepts
- Demand schedule/curve: shows the relationship between price and quantity demanded.
- Quantity demanded vs. demand: "quantity demanded" is the specific amount bought at a particular price (a movement along the demand curve). "Demand" means the whole relationship (the demand curve); an increase or decrease in demand is a shift of the entire curve caused by non-price factors (income, tastes, prices of related goods, expectations, number of buyers).

2. Step-by-step reasoning
- Start with a demand curve that maps price to quantity demanded.
- If the price falls and all other determinants are held constant (ceteris paribus), buyers find the good cheaper and purchase more.
- This change is represented by moving down and to the right along the same demand curve — a change in quantity demanded.

3. Intermediate steps (logic)
- Price change → movement along curve, not a shift.
- Lower price → more attractive purchase → higher quantity purchased.
- Therefore: quantity demanded rises when price falls.

4. Why the correct answer is correct
- Option (a) explicitly describes a movement along the demand curve (increase in quantity demanded) caused by a lower price, matching the law of demand and the definition of quantity demanded.

5. Why other options are incorrect
- (b) “There is an increase in demand.” Incorrect because an increase in demand means the entire demand curve shifts right; that requires changes in non-price determinants, not a change in the good’s own price.
- (c) “There is a decrease in the quantity demanded.” Wrong: a decrease in quantity demanded results from a price increase, not a price fall.
- (d) “There is a decrease in demand.” Wrong for the same reason as (b); price changes do not decrease demand (shift left) unless other factors change.

6. Conclusion
The correct choice is (a) There is an increase in the quantity demanded, which matches the provided answer.

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