Passage (Economics)

When the price of a good rises, consumers generally buy less of it, and when the price falls, they buy more. Economists call this the law of demand. It holds because people look for cheaper alternatives when prices climb, and because lower prices bring in buyers who could not previously afford the product.

Question

If the price of tea falls, what would the law of demand predict?

Options

• (A) Fewer people will buy tea.
• (B) More people will buy tea.
• (C) There will be no change in purchases.
• (D) Tea will become scarce.

Answer

(B) More people will buy tea.

Solution

1. The passage states that when the price falls, consumers buy more.
2. Applying this to tea, a lower price should increase purchases.
3. The passage does not say anything about scarcity.