Demand, Supply and How Markets Work: Question 1

Worked solution

Step 1: Identify what has actually changed

Only the price of hiking boots themselves has changed, from $90 to $70. The stem tells us that incomes, tastes and every other influence on demand are unchanged, so nothing has shifted the demand curve. Buyers are simply reacting to the new price.

Step 2: Apply the vocabulary for movements along the demand curve

When the price of a good changes and every other influence on demand stays the same, buyers move to a different point on the same demand curve:

• A fall in price causes an extension in demand. Quantity demanded rises.
• A rise in price causes a contraction in demand. Quantity demanded falls.

Here the price of hiking boots falls and the quantity demanded rises, so this is an extension in demand.

Step 3: Rule out the other options

• “A decrease in demand” (option B) describes a leftward shift of the whole demand curve, which is caused by a non-price determinant such as falling income or changing tastes, not by the good’s own price, so it does not fit here.
• “A contraction in demand” (option C) is the opposite movement to what is described: it happens when price rises and quantity demanded falls.
• “An increase in supply” (option D) describes sellers, not buyers, and the stem only describes customers buying more, not studios or shops offering more for sale.

Final answer

Falling price of hiking boots, with nothing else changing, moves buyers along the existing demand curve to a point of higher quantity demanded. This is an extension in demand, option A.