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# Substitution and income effects and the law of demand

Learn about the Law of Demand, which shows that as prices decrease, quantity demanded increases. Explore three reasons for this: substitution effect (buying cheaper alternatives), income effect (extra money to spend), and decreasing marginal utility (less value from additional units), and see how each creates a downward-sloping demand curve.

## Want to join the conversation?

• At , I thought that decreasing Marginal utility would make the curve become more constant or at least bow shaped towards the right, as people then tend to reduce the quantity demanded for every decrease in price? So basically an inflexion point..?
• Instead of looking at quantity demanded, I would think of it like this. As consumers purchase more and more of that good, the utility they derive from that good becomes lower and lower. Therefore, they will pay less for the goods.
• At Sal states that having price on the vertical axis and the quantity demanded on the horizontal axis is the standard convention, but wouldn't it make more sense for price to be on the horizontal axis since it is the independent variable? Thanks in advance!
• Yes, it is just a convention that economists use.
• Didn’t get the marginal utility concept
• It may be easier to think of it as with chocolate. So as you consume more chocolate, the satisfaction/benefit(utility) you get from it gets smaller each time. This benefit is the reason why we demand things! So, as you get less satisfied from consuming more chocolate, you would buy more only at a lower price, hence the demand curve is sloping downwards
(1 vote)
• So, if you have a lemonade stand, and you lower the prices. Would you still rake in more profits than the rich kid selling 50 flavors of lemonade at a high price in this present day with people willing to spend more of their money for different colors and flavors?
(1 vote)