How does price affect demand?

How does price affect demand?

• A. Lower prices always increase demand
• B. Higher prices never affect demand
• C. Price changes do not affect demand
• D. Lower prices generally increase demand; higher prices may reduce demand

Answer: (D)

Prices and demand move in opposite directions. When a product becomes cheaper, more people can afford it or decide to buy more of it, so the quantity demanded increases. When the price goes up, fewer people can afford it or choose to buy less, so the quantity demanded decreases. This is described by the common rule of thumb that price changes generally push demand up or down, though a few other factors like income, tastes, and prices of substitutes or complements can also influence how strongly demand responds. So, lowering prices generally increases demand, while higher prices may reduce demand.

Prices and demand move in opposite directions. When a product becomes cheaper, more people can afford it or decide to buy more of it, so the quantity demanded increases. When the price goes up, fewer people can afford it or choose to buy less, so the quantity demanded decreases. This is described by the common rule of thumb that price changes generally push demand up or down, though a few other factors like income, tastes, and prices of substitutes or complements can also influence how strongly demand responds. So, lowering prices generally increases demand, while higher prices may reduce demand.