Law of Diminishing Marginal Utility/Causes of downward slopping of demand curve/Why demand increases when price falls?/infotech9213.

What is the Law of Diminishing Marginal Utility?



The law of diminishing marginal utility states that as, consumption of commodity increases, marginal utility of each unit goes on diminishing. Accordingly, for every additional unit to be purchased by the consumer, the consumer is willing to pay less and less price.

Why demand curve downward slopping?/Why demand increase when price falls?

(1) Law of Diminishing Marginal Utility:

According to law of diminishing marginal utility as consumer consume more. then, Marginal utility falls and we know that a consumer consume a commodity up to that point where, MU=P. and when price falls then MU>P therefore consumer getting surplus and demand increases.

(2) Income Effect:

It refers to change in quantity demand due to change in the "real income" as a result of change in price. When price falls then real income of consumer increases. Accordingly demand for the commodity increases as price falls.

(3) Substitution Goods:

substitution effect refers to substitution of one commodity for the other when it becomes relatively cheaper. thus, when own price of commodity-X falls, it becomes cheaper in relation to commodity-Y. Accordingly, X is substituted for Y. It is expansion of demand (for commodity-X) due to substitution effect. 

(4) Number of Buyer:

When price of commodity falls, then those consumer who can not afford to buy. now they can afford to buy it due to fall in price. as a result number of buyer increases and therefore demand for the commodity increases.

(5) Different Uses:

There are several goods which have different uses. When price falls then different uses are start as a result it's demand increases. For example Milk, milk is used for making curd, cheese and butter. if price of milk reduces, it will be put to different uses. Accordingly, demand for milk expends.


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