ECONOMICS
ECONOMIC SYSTEMS
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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law of demand
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income effect
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law of diminishing marginal utility
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substitution effect
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Detailed explanation-1: -The substitution effect arises from the fact that people must choose between combinations of goods that fall within their budgets. If a product suddenly costs more, consumers will naturally look to buy substitute goods that are relatively cheaper.
Detailed explanation-2: -The law of demand states that consumers buy more of a good when its price decreases and less when its price increases. The law of demand is the result of two separate behavior patterns that overlap, the substitution effect and the income effect.
Detailed explanation-3: -If the price decreases, quantity demanded increases. This is the Law of Demand. On a graph, an inverse relationship is represented by a downward sloping line from left to right.
Detailed explanation-4: -The first is the substitution effect which states that as the price of the good declines, it becomes relatively less expensive compared to the price of other goods and thus the quantity demanded is greater at a lower price.