Law of Demand

#topic/econ

There is an INVERSE relationship between price and quantity demanded. Ex: When price goes up, quantity demanded goes Idown.

Why does the Law of Demand occur?

The Substitution Effect
If the price goes up for a produce, consumers buy less of that product and more of another substitute produce (and vice versa)

The Income Effect
If the price goes down for a product, the purchasing power increases for consumers allowing them to purchase more.

Law of Diminishing Marginal Utility
We buy goods because we get utility from them. The Law states that as you consume anything, the additional satisfaction that you will receive will eventually start to decrease.

Why does the Law of Demand occur?

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