Association of Chartered Certified Accountants (ACCA) Certification Practice Test

What is the typical slope of demand curves in economic theory?

1. Upward from left to right

2. Downward left to right

3. Vertical

4. Horizontal

The correct answer is: Downward left to right

In economic theory, demand curves are typically depicted as downward sloping from left to right, which reflects the law of demand. This law states that all else being equal, as the price of a good or service decreases, the quantity demanded by consumers increases. Conversely, as the price increases, the quantity demanded tends to decrease. This negative relationship between price and quantity demanded creates the characteristic downward slope of the demand curve. The downward slope occurs because lower prices make a good more affordable for consumers, thereby incentivizing them to purchase more. Conversely, higher prices lead to a reduction in the quantity that consumers are willing and able to buy, as some may seek alternatives or forgo the purchase altogether. Understanding this fundamental principle is crucial for analyzing market behavior, consumer choices, and price mechanisms within an economy. The other choices—upward sloping, vertical, and horizontal—fail to capture the essence of how demand operates in relation to price and quantity demanded.