In microeconomics, what is the basic principle of the law of demand (holding other factors constant)?

• A. Changes in income are the primary cause of movements along the demand curve.
• B. As the price of a good rises, the demand curve shifts to the right.
• C. As the price of a good rises, the quantity demanded of that good also rises because consumers perceive it as higher quality.
• D. As the price of a good rises, the quantity demanded of that good falls, and as the price falls, the quantity demanded rises.

Answer: (D)

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 other factors constant (ceteris paribus).
2. Recognize that the law of demand states: when the price of a good increases, the quantity demanded decreases, and when the price decreases, the quantity demanded increases.
3. Note that this relationship is represented as 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. Distinguish between movements along the demand curve (caused by price changes) and shifts of the demand curve (caused by other factors like income, tastes, or prices of related goods).
5. Summarize that the basic principle of the law of demand is that price and quantity demanded move in opposite directions, assuming all other factors remain constant.