Refer to Figure 3-2. The fact that the demand curve slopes downward reflects the fact that:

• A. as the price of a good decreases, the quantity demanded decreases
• B. as the price of a good decreases, the quantity demanded increases
• C. the demand for the good is perfectly inelastic
• D. as the price of a good increases, the quantity demanded increases

Answer: (B)

Verified step by step guidance

1. Understand the law of demand, which states that, all else equal, as the price of a good decreases, the quantity demanded increases. This relationship is why the demand curve slopes downward.
2. Recognize that a downward-sloping demand curve means there is an inverse relationship between price and quantity demanded, not a direct one.
3. Eliminate options that contradict this principle: 'as the price of a good decreases, the quantity demanded decreases' and 'as the price of a good increases, the quantity demanded increases' both describe a direct relationship, which is incorrect.
4. Understand that 'the demand for the good is perfectly inelastic' means quantity demanded does not change with price, which would be represented by a vertical demand curve, not a downward-sloping one.
5. Conclude that the correct interpretation of a downward-sloping demand curve is that as the price of a good decreases, the quantity demanded increases.