Question

Explain the causes behind law of demand?

Answer 1

Causees behind law of demand expresses the functional relationship between price and quantity demand.Tha law of demand or functional relationship between price and quantity demand of a commodity is one of the best known and most important laws of economic theory. ●prices of substitute goods do not change. ●prices of complementary goods remain constant. ●there is no expectation of change in price in the future.

Answer 2

Here are 3 most basic reasons for the Law of 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.(Understand it this way, you go to the market and you eat a semusa,now that first semusa was yummy,then you ate another that was also fine,and then you ate another and it satisfied your hunger.Now if you'll eat 4th semusa,you won;t get the same level of satisafaction as you had from the 1st semusa.So if the price remained same,you will not buy the 4th one but if the seller offers you that 4th semus at a lower price,you;ll definitely consider eating the 4th one too.)

Hope,I made it clear to you. :)