Question

How does the income and substitution effect explain the law of demand?​

Answer 1

Explanation:

The law of demand states that quantity demanded increases when price decreases, but why? Two reasons why the demand curve slopes downward are the substitution effect and the income effect.

Answer 2

Answer:

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Income substitution effect | Economics Help If the price of a good increases, then there will be two different effects – known as the income and substitution effect. The substitution effect states that an increase in the price of a good will encourage consumers to buy alternative goods. ... The income effect looks at how the price change affects consumer income.

Substitution and income effects and the law of demand

The law of demand states that quantity demanded increases when price decreases, Two reasons why the demand curve slopes downward are the substitution effect and the income effect. The income effect states that when the price of a good decreases, it is as if the buyer of the good's income went up.