Which of the following statements accurately describes the law of demand in microeconomics?
Show answer & explanation
Correct answer: C
Explanation
The correct answer is option 3 i.e. As price increases, demand decreases, ceteris paribus.
The Law of Demand states that there is an inverse relationship between the price of a good and its quantity demanded, provided all other factors remain constant (ceteris paribus). When the price of a product rises, consumers' purchasing power decreases, or they switch to cheaper substitutes, leading to a drop in demand. Conversely, a price decrease makes the good more affordable, encouraging higher consumption. This fundamental principle is visually represented by a downward-sloping demand curve.
Other options:
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As price increases, demand increases: This describes "Veblen goods" or "Giffen goods," which are rare exceptions to the standard law of demand.
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As price decreases, demand decreases: This is logically incorrect for normal goods; usually, lower prices attract more buyers.
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Price has no effect on demand: This describes "perfectly inelastic demand," where the quantity demanded remains the same regardless of price changes (e.g., life-saving medicine).