Which of the following explains the downward slope of an ordinary demand curve (A) Income effect of price change (B) Substitution effect of price change (C) Utility Maximising behaviour of consumer (D) Risk averse behaviour of consumer Choose the most appropriate answer from the options given below:?

(A) and (B) only
(B), (C) and (D) only
(A), (B) and (C) only
(A), (C) and (D) only

LohaHridoy

4 views

2025-01-04 04:42

1 Answers

AhmedNazir

Option 3 : (A), (B) and (C) only

The correct answer is (A), (B) and (C) only

Law of Demand:

The law of demand states that, all other factors are held constant (cetris peribus), the relationship between price and quantity demanded for any good or service is inverse. A product's price increase causes a decrease in consumer demand for that same product.

Demand Curve:

In economics, a demand curve is a graphic representation of the relationship between a product's price and the amount that is wanted.
The graph is made with Quantity demanded on the horizontal axis and price on the vertical axis.

[ alt="62547dc76043976ba12b9ee7 16559020098831" src="//storage.googleapis.com/tb-img/production/22/06/62547dc76043976ba12b9ee7_16559020098831.png" style="height: 265px; width: 320px;">

Reasons for Downward slope of Demand Curve:

1. Income effect: This principle states that when the price of commodities decreases, people's real income rises. This occurs because they save money by spending less in the event of declining prices. They will buy more and more when their financial situation improves. Therefore, as prices decline, demand rises.

2. Substitution effect: Different goods are frequently categorised as substitutes by consumers. For instance, many Indian consumers may mix and match coffee and tea for a variety of reasons. Customers may move to buying more tea when coffee prices rise since it will be comparably less expensive. This is referred to by economists as the substitution effect. As a result, the demand curve for tea will be downward sloping if the price decreases.

3. The law of diminishing the marginal utility: This principle states that as the amount of a good increases, so does its marginal usefulness. As a result, when there is a greater supply, prices will decrease and demand will rise. Therefore, when prices are lower, consumers would desire more things. The demand curve slopes downward for this reason.

4 views Answered 2022-09-04 04:29

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