Certified Supply Chain Professional (CSCP) Practice Exam

What does the law of demand state?

1. Price increase leads to demand increase

2. Price decrease leads to demand decrease

3. Price increase leads to demand decrease

4. Price decrease leads to supply increase

The correct answer is: Price increase leads to demand decrease

The law of demand states that, all else being equal, as the price of a good or service increases, the quantity demanded by consumers decreases. This inverse relationship between price and demand is fundamental to economic theory. When prices rise, consumers tend to purchase less because the higher cost may lead them to either seek substitutes or forego the purchase entirely. Conversely, when prices drop, consumers are incentivized to buy more, as the lower price makes the good or service more accessible, potentially increasing its quantity demanded. In the context of the available choices, the correct option reflects this principle. Price increases lead to a decrease in demand, aligning with the law of demand and the behavior exhibited by consumers in a market economy. Understanding this principle helps businesses and economists predict consumer behavior and make informed decisions regarding pricing, production levels, and inventory management.