Advertisements
Advertisements
Question
Briefly explain any two reasons for the occurrence of the law of demand.
Advertisements
Solution
- Law of Diminishing Marginal Utility: Law of diminishing marginal utility states that as a consumer consumes more and more units of a commodity, the utility derived from each successive unit goes on decreasing. So the demand for a commodity depends on its utility. If the consumer gets more satisfaction, he will pay more. As a result, the consumer will not be prepared to pay the same price for additional units of the commodity. The consumer will buy more units of the commodity only when the price falls.
- Income Effect: Income effect refers to an effect on demand when the real income of the consumer changes due to the change in the price of the given commodity. When the price of the given commodity falls, the purchasing power (real income) of the consumer increases. As a result, he can purchase more of the given commodity with the same money income.
APPEARS IN
RELATED QUESTIONS
Find the odd word
Assumptions to law of demand -
Increase in demand is caused by
In case of relatively more elastic demand, the shape of the curve is
State with reason whether you agree or disagree with the following statement :
When price of Giffen goods fall, the demand for it increases.
State and explain the law of demand with the help of a hypothetical schedule and graph.
Giffen goods are richman's goods
If prices of cars rise, many people may put off buying a new car. So the demand for petrol will fall.
If a good is inferior good, then purchases of that good will decrease when ______.
Explain four circumstances under which the law of demand does not operate.
State whether the following statement is true or false. Give reasons.
The law of demand states a direct relationship between price and demand.
