The inverse relationship between price and quantity demanded is shown by which of the following statements?

The inverse relationship between price and quantity demanded is shown by which of the following statements?

• A. No relationship
• B. As price falls, quantity demanded falls
• C. As price rises, quantity demanded falls; as price falls, quantity demanded rises
• D. As price rises, quantity demanded rises

Answer: (C)

The key idea here is the law of demand: when price goes up, quantity demanded tends to fall, and when price goes down, quantity demanded tends to rise. The statement that best captures this says that as price rises, quantity demanded falls; as price falls, quantity demanded rises. This reflects the downward-sloping demand curve and the idea that higher prices deter purchases while lower prices encourage them. Why this is the best fit: it describes the inverse relationship in both directions, which is exactly what the law of demand predicts. When prices rise, people buy less, and when prices fall, they buy more, whether that means more units bought by existing buyers or more buyers entering the market. For context, the substitution effect (goods become cheaper relative to alternatives) and the income effect (lower prices increase purchasing power) both help explain why quantity demanded increases when price falls and decreases when price rises. The other statements don’t fit the observed pattern: one claims no relationship between price and quantity demanded, which contradicts the well-established link; another says quantity demanded falls when price falls, which reverses the direction; the last says quantity demanded rises when price rises, which also reverses the direction.

The key idea here is the law of demand: when price goes up, quantity demanded tends to fall, and when price goes down, quantity demanded tends to rise. The statement that best captures this says that as price rises, quantity demanded falls; as price falls, quantity demanded rises. This reflects the downward-sloping demand curve and the idea that higher prices deter purchases while lower prices encourage them.

Why this is the best fit: it describes the inverse relationship in both directions, which is exactly what the law of demand predicts. When prices rise, people buy less, and when prices fall, they buy more, whether that means more units bought by existing buyers or more buyers entering the market.

For context, the substitution effect (goods become cheaper relative to alternatives) and the income effect (lower prices increase purchasing power) both help explain why quantity demanded increases when price falls and decreases when price rises.

The other statements don’t fit the observed pattern: one claims no relationship between price and quantity demanded, which contradicts the well-established link; another says quantity demanded falls when price falls, which reverses the direction; the last says quantity demanded rises when price rises, which also reverses the direction.