Which statement best describes the law of demand (holding all other factors constant)?

• A. As the price of a good increases, the quantity demanded decreases, and as the price decreases, the quantity demanded increases.
• B. As consumer income rises, the quantity demanded of a normal good decreases at every price.
• C. As the price of a good increases, the quantity demanded increases because consumers perceive higher quality.
• D. As the price of a good increases, the quantity supplied decreases because firms exit the market.

Answer: (A)

Verified step by step guidance

1. Understand that the law of demand describes the relationship between the price of a good and the quantity demanded, holding all other factors constant (ceteris paribus).
2. Recall that the law of demand states: when the price of a good increases, the quantity demanded decreases; conversely, when the price decreases, the quantity demanded increases.
3. Recognize that this relationship is typically represented by a downward-sloping demand curve on a graph where the vertical axis is price (\(P\)) and the horizontal axis is quantity demanded (\(Q_d\)).
4. Note that changes in consumer income or perceptions of quality are factors that shift the demand curve, not movements along the demand curve, so they are not part of the law of demand itself.
5. Also, understand that the law of demand concerns quantity demanded, not quantity supplied, so statements about supply behavior do not describe the law of demand.