Practice Quiz

Financial Planner

Category - General Principles of Financial Planning

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In economics, what term explains that higher prices reduce the demand for an item and lower prices increase the demand for an item?
  1. Demand Curve
  2. Price Elasticity
  3. Price Inelasticity
  4. Law of Demand
Explanation
Answer: D - The law of demand explains that higher prices reduce the demand for an item and lower prices increase the demand for an item. Consumers buy less of a product as prices increase primarily because of the availability of substitutes. Substitutes are considered items that perform functions similar to those of tan item it has replaced. Consumers are more responsive to price when more viable substitutes are available.
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