ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -The income effect, in microeconomics, is the resultant change in demand for a good or service caused by an increase or decrease in a consumer’s purchasing power or real income.

Detailed explanation-2: -The price effect is a concept that looks at the effect of market prices on consumer demand. The price effect can be an important analysis for businesses in setting the offering price of their goods and services. In general, when prices rise, buyers will typically buy less and vice versa when prices fall.

Detailed explanation-3: -The law of demand states that the quantity purchased varies inversely with price. In other words, the higher the price, the lower the quantity demanded. This occurs because of diminishing marginal utility.

Detailed explanation-4: -Alchian and Allen’s “third law of demand” states that as a fixed cost increases by the same amount for low-and high-quality goods, the ratio of the prices of high-to low-quality goods will fall and the quantity demanded of high quality goods relative to low quality goods will increase.