According to the law of demand, what happens to the quantity demanded of a good when its price rises, holding all other factors constant?

• A. Price and quantity demanded are unrelated, ceteris paribus.
• B. Quantity demanded increases as price rises, ceteris paribus.
• C. Quantity demanded stays constant as price rises, ceteris paribus.
• D. Quantity demanded decreases as price rises, ceteris paribus.

Answer: (D)

Verified step by step guidance

1. Understand the law of demand: It states that, ceteris paribus (holding all other factors constant), there is an inverse relationship between the price of a good and the quantity demanded.
2. Identify the key variables: Price (P) and Quantity Demanded (Qd). According to the law, when price increases, quantity demanded decreases, and vice versa.
3. Express this relationship mathematically as a downward-sloping demand curve, which can be represented as \(Q_d = f(P)\) where \(\frac{\partial Q_d}{\partial P} < 0\).
4. Interpret the meaning of ceteris paribus: This means that the only factor changing is the price, while other determinants of demand (like income, tastes, prices of related goods) remain constant.
5. Conclude that when the price of a good rises, the quantity demanded falls, illustrating the negative slope of the demand curve.