Reason for the Law of Demand: (Downward Sloping Curve)Substitution Effect of a price change
Increase in price of good caused consumers to switch to relatively cheaper substitutes.
Substitute Effect: The effect on quantity demanded of a change in price arising from the consumer switching to or from alternative (substitutes) products.
Income Effect of a price change
When price of good falls, consumers will be able to afford more of the good with their given budget/income. Purchasing power increase.
Income Effect: The effect on quantity demanded of a change in price arising from the consumer becoming better or worse off as a result of the price change.
Law of Diminishing Marginal Utility (Alternative Explanation)
As a consumer consumes more and more of a particular good, the extra satisfaction (utility) from the additional unit will diminish. Because additional utility diminishes, the consumer is only willing to buy more of the good if the price is lower.
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