Micro Economics
Causes of changes in quantity demanded:
Changes the quantity demanded occur due to many factors. The main
causes of changes in quantity demanded are discussed below:
Law of diminishing marginal utility: Other things remaining the same,
if a consumer consumes a commodity continuously the marginal
utility from the different units of the commodity decreases
continuously. This is called law of diminishing marginal utility.
Income effect: Other things remaining constant, if the price of a
commodity is decreased, the real income of the consumer is
increased. This is because there exist some excess money in the hand
of the customer even after the purchase of same amount of
commodity which the customer purchases before the change in price.
The amount of commodity the consumer purchases with excess
money is called income effect.
Substitution effect: Relative price of any commodity is decreased due
to fall in the price of that commodity. As a result the consumer
purchases larger amount of the commodity in place of relatively more
costly substitute commodities. On the other hand, relative price of the
commodity is increased due to rise in the price of that commodity. As
a result the consumer purchases larger amount of the relatively less
costly substitute commodity in place of the commodity whose price
has risen. This is called substitution effect.
Change in the number of consumer: According to Prof. Samuelson,
the number of consumer increases as a result of decrease in price of
the commodity. This is because the consumers who were not able to
purchase the commodity previously are now purchased the
commodity due to fall in price of commodity. As a result the total
demand of commodity is increased. On the other hand, total demand
Causes of changes in quantity demanded:
Changes the quantity demanded occur due to many factors. The main
causes of changes in quantity demanded are discussed below:
Law of diminishing marginal utility: Other things remaining the same,
if a consumer consumes a commodity continuously the marginal
utility from the different units of the commodity decreases
continuously. This is called law of diminishing marginal utility.
Income effect: Other things remaining constant, if the price of a
commodity is decreased, the real income of the consumer is
increased. This is because there exist some excess money in the hand
of the customer even after the purchase of same amount of
commodity which the customer purchases before the change in price.
The amount of commodity the consumer purchases with excess
money is called income effect.
Substitution effect: Relative price of any commodity is decreased due
to fall in the price of that commodity. As a result the consumer
purchases larger amount of the commodity in place of relatively more
costly substitute commodities. On the other hand, relative price of the
commodity is increased due to rise in the price of that commodity. As
a result the consumer purchases larger amount of the relatively less
costly substitute commodity in place of the commodity whose price
has risen. This is called substitution effect.
Change in the number of consumer: According to Prof. Samuelson,
the number of consumer increases as a result of decrease in price of
the commodity. This is because the consumers who were not able to
purchase the commodity previously are now purchased the
commodity due to fall in price of commodity. As a result the total
demand of commodity is increased. On the other hand, total demand
