The law of demand states consumers will buy less of an item if:

• A. The price of that item increases
• B. The price of that item decreases
• C. Income rises
• D. Prices of substitutes fall

Answer: (A)

The key idea is that demand moves in the opposite direction of price, all else equal. When the price of an item rises, people buy less because their purchasing power falls and they may switch to cheaper alternatives. This combination of the income effect (you can’t buy as much with the same money) and the substitution effect (you substitute toward cheaper goods) leads to a lower quantity demanded as price goes up. That’s why the statement about consumers buying less when the price increases is correct. If the price dropped, quantity demanded would rise; higher income tends to shift demand for the item rather than simply changing how much is bought at a given price; and a drop in the price of substitutes changes demand through substitution effects rather than the direct price–quantity relationship for this item.