Which of the following best describes how a change in the price of a good affects its supply and demand, assuming all other factors remain constant?

• A. A decrease in price leads to a decrease in both quantity demanded and quantity supplied.
• B. A decrease in price leads to an increase in quantity supplied and a decrease in quantity demanded.
• C. An increase in price leads to a decrease in quantity demanded and an increase in quantity supplied.
• D. An increase in price leads to an increase in both quantity demanded and quantity supplied.

Answer: (C)

Verified step by step guidance

1. Step 1: Understand the Law of Demand, which states that, ceteris paribus (all other factors held constant), when the price of a good increases, the quantity demanded decreases, and when the price decreases, the quantity demanded increases. This is because consumers tend to buy less of a good when it becomes more expensive and more when it becomes cheaper.
2. Step 2: Understand the Law of Supply, which states that, ceteris paribus, when the price of a good increases, the quantity supplied increases, and when the price decreases, the quantity supplied decreases. Producers are willing to supply more at higher prices because it becomes more profitable to do so.
3. Step 3: Recognize that a change in price affects the quantity demanded and quantity supplied, not the demand or supply curves themselves. A movement along the demand or supply curve occurs, not a shift of the curve.
4. Step 4: Apply these laws to the options given: a decrease in price should lead to an increase in quantity demanded and a decrease in quantity supplied; an increase in price should lead to a decrease in quantity demanded and an increase in quantity supplied.
5. Step 5: Use this understanding to identify the correct description: an increase in price leads to a decrease in quantity demanded and an increase in quantity supplied, consistent with the laws of demand and supply.