A Decrease in the Price of a Good Will Do What?
A decrease in the price of a good will increase the quantity demanded. By the law of demand, a lower price causes a movement downward along the existing demand curve, so consumers buy more of that good. This is a change in quantity demanded, not a shift in demand.
The answer
A decrease in the price of a good will increase the quantity demanded of that good. This is the law of demand: all else equal, price and quantity demanded move in opposite directions. When the price falls, consumers respond by buying more.
The crucial wording is quantity demanded, not demand. A price change moves you along the demand curve to a new point - it does not move the whole curve. This distinction is the single most tested idea in introductory microeconomics.
Movement along vs. a shift of the curve
- Change in quantity demanded = a movement along a fixed demand curve, caused only by a change in the good's own price. A price decrease moves you down and to the right along the curve.
- Change in demand = a shift of the entire curve, caused by something other than the good's own price - income, tastes, prices of related goods, expectations, or number of buyers.
So when the exam says "a decrease in the price of the good," the cause is the good's own price, which means the effect must be a movement along the curve - an increase in quantity demanded. It cannot be a shift, because the good's own price never shifts its own demand curve.
Why the other options are wrong
- "Increase demand" / "shift the demand curve right" - Wrong. The good's own price change does not shift the curve; only external factors (income, tastes, related-good prices, expectations, buyer count) do. Calling it an increase in demand confuses the two concepts.
- "Decrease the quantity demanded" - Wrong direction. The law of demand says a lower price raises quantity demanded, not lowers it.
- "Increase the quantity supplied" - This confuses the demand side with the supply side. A lower price actually reduces quantity supplied (law of supply), and the question is about the demand response.
- "Have no effect" - Wrong; price and quantity demanded are directly linked by the law of demand.
Why quantity demanded rises when price falls
Two forces explain the law of demand:
- Substitution effect - when a good gets cheaper relative to alternatives, consumers switch toward it and away from now-relatively-expensive substitutes.
- Income effect - a lower price means each dollar of income buys more, effectively increasing purchasing power, so consumers can afford to buy more of the good.
Together these effects guarantee that, for ordinary goods, a price cut increases the quantity people want to buy.
The bigger picture
Getting this right hinges on precise vocabulary. "Demand" refers to the whole relationship (the entire curve/schedule); "quantity demanded" refers to one specific amount at one specific price. Own-price changes affect quantity demanded (movement along); everything else affects demand (a shift). Keep those straight and you will correctly answer nearly every demand-curve question on the exam.
A Decrease in the Price of a Good Will Do What?
Frequently asked
Does a price decrease shift the demand curve or move along it?
It moves you along the existing demand curve. A change in the good's own price never shifts its own demand curve - it produces a movement to a new point on the same curve, which economists call a change in quantity demanded.
What is the difference between quantity demanded and demand?
Demand refers to the entire relationship between price and quantity - the whole curve or schedule. Quantity demanded is the specific amount consumers buy at one particular price. Own-price changes alter quantity demanded; external factors alter demand itself.
What is the law of demand?
The law of demand states that, holding everything else constant, the quantity demanded of a good rises when its price falls and falls when its price rises. Price and quantity demanded move in opposite directions, giving the demand curve its downward slope.
Why does quantity demanded rise when price falls?
Two effects drive it. The substitution effect makes consumers switch toward the now-cheaper good and away from substitutes, and the income effect means a lower price stretches purchasing power so buyers can afford more. Together they increase the quantity demanded.