LAW OF DEMAND

• As the price of a good/service rises, consumer demand decreases; as the price falls, demand increases, as shown by a downward-sloping demand curve on a graph

  Law of demand
• The law of demand explains an inverse relationship
• What are the factors that affect the demand?

  Substitution effect, income effect, diminishing marginal utility, and exceptions and giffen goods
• If the price of a product or service rises, consumers might opt for more affordable alternatives, especially if they are substitutes. This behavior of substituting expensive items with cheaper ones plays a role in the inverse correlation between price and quantity demanded?

  Substitution effect
• If the price of a product or service drops, consumers perceive themselves as wealthier as they can buy the same amount for less money. Conversely, when prices increase, consumers feel less affluent due to reduced purchasingpower, resulting in decrease demand.

  Income effect
• This theory indicates that as consumers increase their consumption of a product or service, the extra satisfaction (or utility) gained from each additional unit decreases. Consequently, consumers become less willing to pay for additional units of a product or service.?

  Diminishing marginal utility
• e inferior goods with demand increasing as price rises due to the income effect outweighing the substitution effect, typically in cases of extreme poverty?

  Exceptions and giffen goods
• The law of demand applies to individuals and the entire market, examining how quantity demanded changes with price.
• Market demand reflects the total needs of all consumers in the market.