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Questions
What is meant by the income effect of a fall in the prices of a commodity?
Explain how income effect is responsible for the negative slope of the demand curve.
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Solution
A change in demand due to change in real income resulting from change in the price of a commodity is known as the income effect. For example, a fall in the price of a commodity increases the real income, i.e., the purchasing power of the given money income increases. The consumer can now afford to buy more of the commodity with his given money income. Accordingly demand for the commodity increases.
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If with the rise in price of good Y, demand for good X rises, the two goods are:
If prices of cars rise, many people may put off buying a new car. So the demand for petrol will fall.
State the law of demand.
Explain four circumstances under which the law of demand does not operate.
The following table shows the amount of sugar bought by a household at different prices:
| Period | Price (₹ per kg) | Amount Bought (kg) |
| Jan. 2000 | ₹ 15 | 4 |
| Feb. 2000 | ₹ 16 | 5 |
Does the behaviour of household contradict the law of demand? Give reasons in support of your answer.
According to the Law of Demand, what happens when the price of a commodity decreases, assuming no other factors change?
Which of the following is NOT an assumption of the Law of Demand ?
