What happens when price increases?

• A. Demand will always increase
• B. Demand will never change
• C. Demand will definitely fall to zero
• D. Demand may fall as people buy less or switch to substitutes

Answer: (D)

When price goes up, people tend to buy less of that good or switch to a cheaper substitute. This happens because of the substitution effect (you choose a cheaper option) and the income effect (the higher price makes you feel poorer and you tighten spending). So the quantity demanded decreases as price rises, which is why the statement that demand may fall as people buy less or switch to substitutes fits best. Remember, a price increase doesn’t usually shift the entire demand curve by itself; it moves along the curve to a smaller quantity. The other options don’t fit because price increases don’t cause demand to rise, stay unchanged, or drop all the way to zero in normal situations.