(a) (i) Law of demand states that there is inverse relationship between price and quantity demanded, keeping other factors constant i.e., price of substitutes goods, taste of the consumer, income of the consumer etc. 

(ii) Law of Diminishing Marginal Utility : Law of diminishing marginal utility states that as a consumer consumes more and more units of a commodity, the utility derived from each successive unit goes on decreasing. So demand for a commodity depends on its utility. If the consumer gets more satisfaction, he will pay more. As a result, consumer will not be prepared to pay the same price for additional units of the commodity. The consumer will buy more units of the commodity only when the price falls. 

Income Effect : Income effect refers to effect on demand when real income of the consumer changes due to change in price of the given commodity. When price of the given commodity falls, the purchasing power (real income) of the consumer increases. As a result, he can purchase more of the given commodity with the same money income. 

(b) It is a situation in which prices of goods and services persistently rise at a fast face. 

(i) Impact on Producers : Businessmen (i.e., entrepreneurs, traders, producers, etc.) tend to gain during inflation, because 

• prices of their inventories (stock of goods and raw material) go up and therebyincreasing their profits. 

• prices rise at a faster rate than the cost of production. 

• they are generally borrowers of money for business purposes. Thus, inflation makes the rich (i.e., the business community) richer. 

(ii) Impact on Wage and salary earners during inflation : It is due to the reason that wages and salaries do not increase in the same proportion in which the prices or the cost of living rises. But those workers and employees who have formed strong trade unions stand to lose less in comparison to those who are not organised. Due to inflation, purchasing power of money falls. As a result of it, fixed income earners tend to buy less amount of goods and services than before even when there is a little rise in their wages. In this way, inflation increases the economic burden of those persons who are not in a position to bear it. Therefore, it is rightly called unjust.