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Difficulty: MediumConcept and Law of Demand

Following a reduction in the market price of palm oil, a household increases its monthly purchase of palm oil while all non-price determinants remain unchanged. Which of the following statements correctly describes this consumer response?

  1. A
    An increase in demand, causing the entire demand curve to shift to the right
  2. An increase in quantity demanded, represented by a movement downward along the existing demand curveAnswer
  3. C
    A expansion in joint demand, resulting in a parallel shift of both demand and supply curves
  4. D
    A shift in consumer preference, represented by a movement upward along the demand curve

Answer

An increase in quantity demanded, represented by a movement downward along the existing demand curve
According to the Law of Demand, when the price of a good decreases while all other factors remain constant (ceteris paribus), consumers purchase a larger quantity of that good. Graphically, because only the price of the commodity itself has changed, this is shown as a downward movement along the same static demand curve, termed an increase in quantity demanded.

Step-by-Step Solution

1
Identify the cause of the change in consumer behavior
The change is triggered solely by a decrease in the price of palm oil, with all non-price factors remaining constant (ceteris paribus).
According to the law of demand, price changes of the commodity itself dictate movements along the curve.
2
Distinguish between a change in demand and a change in quantity demanded
A change in price causes a 'change in quantity demanded' (movement along the curve), whereas non-price factors cause a 'change in demand' (shift of the curve).
This structural distinction is a foundational principle of demand analysis.
3
Determine the graphical representation
A lower price leads to a higher quantity demanded, which corresponds to a downward movement along the downward-sloping demand curve.
Demand curves slope downward from left to right, so lower price points lie further down along the curve.

Key Concept

Law of Demand: Movement Along the Demand Curve vs. Shift of the Demand Curve
Estimated Time:1m 0s
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Topics

Concept and Law of Demand

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