A Level Economics AQA Practice Exam

What effect does an increase in the price of a good typically have on its demand?

1. Demand increases

2. Demand decreases

3. Demand remains unaffected

4. Demand fluctuates erratically

The correct answer is: Demand decreases

An increase in the price of a good typically leads to a decrease in the quantity demanded for that good. This relationship is described by the law of demand, which states that, all else being equal, as the price of a good rises, the quantity demanded falls. This occurs because consumers will often seek substitutes or forgo purchasing the good entirely due to higher costs, leading to an overall decline in demand. The decrease in demand reflects a common behavioral response of consumers: when prices go up, they either reduce the quantity they buy or stop buying it altogether. In summary, an increase in the price of a good creates a movement along the demand curve to a lower quantity demanded, affirming that demand decreases.