Which of the following is a primary reason why the demand curve is downward sloping?

• A. As the price of a good decreases, producers are willing to supply less of it.
• B. As the price of a good decreases, consumers are willing and able to buy more of it due to the substitution and income effects.
• C. As the price of a good increases, the demand curve shifts to the right.
• D. As the price of a good increases, consumers' preferences for the good increase.

Answer: (B)

Verified step by step guidance

1. Understand that the demand curve shows the relationship between the price of a good and the quantity demanded by consumers.
2. Recall that a downward sloping demand curve means that as the price decreases, the quantity demanded increases, and vice versa.
3. Identify the key reasons behind this inverse relationship: the substitution effect and the income effect.
4. The substitution effect occurs because when the price of a good falls, it becomes relatively cheaper compared to other goods, so consumers substitute it for more expensive alternatives.
5. The income effect happens because a lower price increases consumers' real purchasing power, allowing them to buy more of the good even if their nominal income stays the same.