explain the reason for law of demand?
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Answer:
Here are the reasons for the operation of the law of demand.
1/ Law of diminishing marginal utility: This law states the MU derived from the consumption of each successive unit of a commodity will keep on decreasing. So the demand depends on utility. As a result, the consumer won't be ready to pay the same price to gain additional units of a commodity rather he will wait for the prices to fall.
2/ Substitution effect: This happens when the price of the substitute good decreases (assuming no change in the price of the primary good). As the price of substitute goods decreases it becomes relatively cheaper and its demand increases in comparison with the primary good. Ex: Coke & Pepsi
3/ Additional Customers: Earlier the people who couldn't afford to buy a certain commodity at a certain price can now do so with the fall in price. This means more increase in demand.
4/ Income Effect: Assuming the price of the goods falls but the income of the consumer remains constant, the number of goods purchased will increase and so will the demand.