Question

which of the following is true about demand?
a. demand is at its greatest level during an economic depression.
b. demand decreases as prices increase.
c. a substitute good or service increases demand for the original good or service.
d. demand is greater when more supply is available.
e. demand has no impact on the price of a good or service.

Explanation:

• Option A: During an economic depression, income levels drop, so demand is typically low, not at its greatest. Eliminate A.
• Option B: According to the law of demand, ceteris paribus, as the price of a good or service increases, the quantity demanded (and generally demand in a basic sense) decreases. This is a fundamental economic principle.
• Option C: A substitute good (e.g., tea for coffee) would decrease demand for the original good (coffee) as consumers switch to the substitute. Eliminate C.
• Option D: Demand is about consumers' willingness and ability to buy, while supply is about producers' willingness to sell. Demand is not directly determined by supply availability; they interact in the market but are distinct concepts. Eliminate D.
• Option E: Demand and price have a reciprocal relationship (law of demand and supply - higher demand can push prices up, lower demand can push them down). So demand does impact price. Eliminate E.

Answer:

B. Demand decreases as prices increase.