Define demand
Explain the causes behind law of demand?
Answers
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Demand is the amount of products or services that consumers wish to purchase at any given price level
The law of demand states that quantity purchased varies inversely with price
Price↑ = Demand ↓
Price ↓ = Demand↑
1.) Substitution effect: When the price of a commodity goes down people will start consuming this commodity in place of its substitutes and hence the quantity demanded of this commodity will increase.(say there are two goods,milk and juice.If price of milk goes down,people are now going to stop consuming juice a little and increase their consumption of milk.
2.) Income effect: when the price of a commodity falls, the people are now able to buy a larger quantity of the same commodity because now their purchasing power,that is the ability to spend on commodities,has increased.So as the price goes down,people buy more.
3.)Law of diminishing marginal utility: Marginal utility means the additional satisfaction that a consumers get when he consumes one more unit of the same commodity.The law says that as you continue to consume more of the same commodity,the additional satisfaction that you derive out of it,keeps on reducing.So from this it becomes clear that,if producers want to have consumers keep buying even when the satisfaction that they are receiving is getting less and less,they have to have the prices of their products pulled down.
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