Which economic principle states that the supply of a good or service will increase when demand is great and decrease when demand is low?

• A. The law of supply and demand
• B. The law of diminishing returns
• C. The law of comparative advantage
• D. The principle of marginal utility

Answer: (A)

This question focuses on how price and production respond to demand changes in a market. When demand for a good is strong, buyers are willing to pay more, which tends to push up the market price. That higher price makes producing and selling more of the good worthwhile, so the quantity supplied increases. When demand is weak, prices fall, and producers reduce output, causing the quantity supplied to drop. This dynamic is described by the law of supply and demand, which explains how markets adjust to shifts in demand and move toward equilibrium.

Other concepts describe different ideas: diminishing returns is about output gained from additional inputs, comparative advantage concerns who should produce goods based on lowest opportunity cost, and marginal utility deals with the extra satisfaction from consuming an additional unit.