When higher prices result in a lower quantity demanded, economists call this relationship:

• A. diminishing marginal utility
• B. the law of demand
• C. income effect
• D. the law of supply

Answer: (B)

Verified step by step guidance

1. Understand the question is asking about the economic principle that explains why higher prices lead to lower quantity demanded.
2. Recall that 'diminishing marginal utility' refers to the decrease in additional satisfaction from consuming more units, but it does not directly describe the price-quantity relationship.
3. Recognize that the 'income effect' describes how a change in price affects consumers' purchasing power, influencing demand but is part of the broader explanation.
4. Identify that the 'law of supply' relates to producers supplying more at higher prices, which is the opposite relationship to demand.
5. Conclude that the correct term describing the inverse relationship between price and quantity demanded is the 'law of demand'.