The principle of supply and demand states that the price varies ______ with demand, but not necessarily _________, with demand.

• A. Inversely, proportionately
• B. Directly, proportionately
• C. Directly, inversely
• D. Indirectly, proportionately

Answer: (B)

Price and demand move in the same direction: when demand increases, prices tend to rise; when demand falls, prices tend to fall. But the amount price changes is not necessarily proportional to the amount demand changes. Market conditions like how easily suppliers can respond (supply elasticity) and other factors can cause price to rise more or less than the change in demand. For example, a small increase in demand for a scarce good can lead to a large price jump if supply is limited, while abundant supply might keep price changes smaller. So the relationship is direct, but not necessarily proportional.