An increase in the price of a product would cause the following change
The correct answer and explanation is:
Correct Answer:
An increase in the price of a product would cause a decrease in the quantity demanded, assuming all other factors remain constant.
Explanation (300 words):
This outcome is explained by the Law of Demand, a fundamental principle in economics which states that, all else being equal, as the price of a good or service increases, the quantity demanded decreases. In other words, there is an inverse relationship between price and quantity demanded.
When the price of a product goes up, it becomes more expensive relative to other goods. As a result, consumers may reconsider their purchase decisions. Some may reduce the amount they buy, substitute it with a cheaper alternative, or stop buying it entirely. This behavior is a direct response to the price change and affects the quantity demanded, not the demand itself.
It’s important to differentiate between demand and quantity demanded:
- Quantity demanded refers to the specific amount of a product consumers are willing to buy at a particular price.
- Demand refers to the overall relationship between various prices and the quantity consumers are willing to buy at each price, represented as the demand curve.
So, when we say that a price increase causes a decrease in quantity demanded, we’re talking about movement along the demand curve, not a shift of the curve.
For example, if the price of a soft drink rises from $1.00 to $1.50, and people buy less of it, that’s a decrease in quantity demanded. But if fewer people want soft drinks regardless of the price (perhaps due to health concerns), that would be a decrease in demand, which is a different concept.
In conclusion, when the price of a product rises, consumers typically buy less of it, which results in a decrease in quantity demanded, assuming all other market conditions remain the same (ceteris paribus).