show the effect of demand curve of trouser when jeans becomes cheaper
Answers
Following are the main causes which are responsible for this relationship and downward sloping of demand curve:
Effect of the law of diminishing utility: we know that the satisfaction derived from the consumption of successive units goes on falling, because earlier units have partly satisfied our wants. In this way, every additional unit of commodity will give us lesser utility (satisfaction).As the consumer is rational,so he would like to maximise his satisfaction by the consumption where marginal utility of the commodity is equal to the price of the commodity. It shows the dependence of law of demand on the law of diminishing utility.
Change in the number of the consumers: In case the price of a particular commodity falls,some new consumer enter the market and start purchasing the commodity. The old consumer also start consuming more of the commodity. If the price increases new consumers withdraw and old consumers start consuming lesser commodity. The result of the consumers behaviour is the operation of the law of demand and the downward slope of the demand curve
Price effect:Remaining the price of other commodity constant,when the price of particular good falls,some new customers are attracted towards this commodity. For the reason more qunatity is demanded as price falls and vice versa. This is known as price effect. Student should remember that price effect is always equal to the sum of substitution effect and income effect.
Substitution effect: when the price of a commodity falls,it becomes cheaper in comparison to other commodities. Thus, consumer start to substitute this commodity in place of the other commodities they have been using. In this way,the demand for this commodity increases. This is known as substitution effect.
Income effect: As the price of the commodity falls, real income of the consumer increases. Now, he can purchase more commodity with the same monetary income or after purchasing the same amount of commodity he will save some monetary income. Out of this saved income, he will naturally spend some money on that commodity. Due to this behaviour, demand for that commodity will increase. This is known as income effect