What does the law of demand state?

The law of demand states that as the price of a good decreases, the quantity demanded by consumers increases, and when the price increases, the quantity demanded decreases. This relationship reflects consumers' tendency to buy more of a product when it becomes less expensive and less of it when the price rises, assuming all other factors remain constant. This behavior is driven by the substitution effect, where consumers substitute cheaper goods for more expensive ones, and the income effect, where a lower price effectively increases the purchasing power of consumers, allowing them to buy more.

In the context of the other options, the first option incorrectly states that as price decreases, quantity demanded also decreases, which contradicts the fundamental principle of the law of demand. The second option dismisses any relationship between price and quantity demanded, which is inconsistent with the established economic principle. Finally, the fourth option regarding supply does not relate to the law of demand; instead, it pertains to the law of supply, which focuses on the relationship between price and quantity supplied. Therefore, the correct choice is that as the price of a good decreases, the quantity demanded increases, and vice versa.