\documentclass[a4paper,12pt]{article}

\usepackage{graphicx}

\begin{document}

Here is the figure {\bf test.eps}:
\bigbreak

\includegraphics[width=3cm]{demos/test.eps}

Hmm.  That's too small.  How about this?
\bigbreak

\includegraphics{demos/test.eps}

Well?

\end{document}