Question

Explain the law of demand through the income and substitution effects

Answer 1

Law of demand:-
According to the law "other thing being equal' quantity demanded of a commodity is inversely related to price of the commodity."
The law explains negative relation between price and quantity demanded of a commodity.


Income effect:-
It is a effect of change in quantity demanded wwhen real income ( purchasing power) of a buyer changes due to change in price of commodity.
Substitution effect:-
it refers to the substitution of one commodity in place of other commodity when it becomes relatively cheaper.

Hope it will help you...