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Theory Of Consumer Behaviour

Question

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Why does demand curve slope downwards?

Solution

Following are the causes why demand curve slope downward:

Law of Diminishing Marginal Utility: According to this law, as consumption of the commodity increases, the marginal utility of successive unit goes on diminishing to a consumer. Accordingly, for every additional unit consumer is willing to pay less and less price.
Income effect: When the real income of buyer changes due to change in the price of the commodity, with a fall in price, real income increases. Accordingly, demand for the commodity expands.
Substitution Effect: Substitution effect refers to substitution of one goods for the other good, when it becomes relatively cheaper. It is an expansion of demand due to substitution effect.
Size of Consumer Group: When the price of a commodity falls, many more buyers can afford to buy it. Accordingly, demand expands.
Different Uses: A good may have several uses. Milk for example is used for making curd, cheese and butter. If price of milk reduces, it will be put to different uses. Accordingly, demand for milk expands.

Some More Questions From Theory Of Consumer Behaviour Chapter

Name two determinants of demand.

List the factors that cause changes in demand.

What is law of demand?

What is demand schedule?

Why does demand curve slope downwards?

Differentiate between substitute and complementary goods.

What is meant by one good being substitute of other?

What is meant by one good being complementary to another.

Give an example of a pair of commodities that are substitutes of each other.

Give an example of a pair of commodities such that one of them is complementary in consumption to the other.

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