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Why more is purchased at a lower price? |
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Answer» The demand curve slopes downwards because of the following reasons: (i) Law of Diminishing Marginal Utility: According to this law, the utility derived from each successive unit of a commodity tends to diminish. Since Px = MUx, diminishing MUx, must mean diminishing Px corresponding to greater purchase of the commodity. (ii) Income Effect: A fall in price of a commodity causes increase in real income of tire consumers. Accordingly, quantity demanded of the commodity increases. (iii) Substitution Effect: When price of a commodity decreases in relation to the price of its substitute, its quantity demanded increases in place of the substitute goods. (iv) Size of Consumer Group: When the price of a commodity falls, many consumers who were not buying it at its previous price begin to purchase it now. |
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