Explain the law of demand why do demand curve slope downwards to right ?Explain
Answers
In other words, as a result of the fall in the price of the commodity, consumer’s real income or purchasing power increases. This increase in real income induces the consumer to buy more of that commodity. This is called income effect of the change in price of the commodity. This is one reason why a consumer buys more of a commodity whose price falls.
The other important reason why the quantity demanded of a commodity rises as its price falls, is the substitution effect. When the price of a commodity falls, it becomes relatively cheaper than other commodities. This induces the consumer to the commodity whose price has fallen for other commodities which have now become relatively dearer. As a result of this substitution effect, the quantity demanded of the commodity, whose price has fallen, rises.