Question

Inverse relationship between the price of a commodity and the quantity demand (negative slope of the demand curve) can be explained in terms of ______.

Options

• income effect

• substitution effect

• the sum total of income effect and substitution effect

• none of these

Answer 1

Inverse relationship between the price of a commodity and the quantity demand (negative slope of the demand curve) can be explained in terms of the sum total of income effect and substitution effect.

Explanation:

The inverse relationship between the price of a commodity and its quantity demanded (i.e., the negative slope of the demand curve) is explained by two key effects:

1. Income Effect: When the price of a good falls, the consumer's real income increases, allowing them to buy more.

2. Substitution Effect: When the price of a good falls, it becomes relatively cheaper than its substitutes, so consumers tend to buy more of it.