What is the effect of a falling price on quantity demanded?

When the price of a good or service falls, it typically leads to an extension of demand. This concept is based on the law of demand, which states that, all else being equal, a decrease in price results in an increase in the quantity demanded by consumers.

As prices decrease, goods become more affordable to a wider range of consumers, leading to an increase in their purchasing power. Consequently, more consumers are willing to buy the product, and existing consumers may decide to buy more than they previously would at a higher price. Thus, the overall quantity demanded increases as a result of the price drop.

In contrast, a reduction in demand would imply that fewer people want to buy the product at any given price, which is not the case when prices fall. A contraction of demand refers to a decrease in quantity demanded due to an increase in price, not a decrease. Equilibrium refers to the state where quantity demanded equals quantity supplied, but it does not directly relate to the effect of falling prices on demand. Therefore, an extension of demand accurately reflects the increase in quantity demanded resulting from a price decrease.