Income effect
Income is one of the major factor which affects the demand, when
a buyer is having low income he will spend less on the product than compared to
person having high income who can buy more of that product.
If the income of the customer rises and he did not increase
his consumption and shifts to a better quality product then the goods from
which he shifted is called inferior goods.
For example- I had ₹100 I
can buy 2 dairy milk silk of ₹50 each but if my income increases to ₹200 then I
can afford 4 dairy milk silk. What if I shifted to ferrero rocher then this
dairy milk silk will be an inferior good for me and by this it will lead to
decreases in demand of silk.
Substitution effect
It happens when there are two goods that can be used
interchangeably then both goods are called substitute goods and when the
increase in price of one good increases leads to change in demand of another
good, this effect is called substitution effect
For example- I went to buy
a bottle of cold drink, I asked for thumbs up but the shopkeeper told that
price of has increased thumbs up by ₹3 so instead I took mountain dew, but what
happened was I just took the substitute of thumbs up so the demand for thumbs
up went down because I shifted to mountain dew.
Utility
Utility is one of the major things for which a person buys a
product, it is the satisfaction derived from the product after consumer if the
product won’t give enough utility to satisfy his want a person won’t buy that
product.
For example- If am thirsty I will drink water, the
satisfying power of water that I derived after consuming it, but what if I was
offered cold drink and water I would have chosen water because it will give me
more utility when I am thirsty.
Supply- It is the quantity
of product that an seller is willing and able to sell in the market, law of
supply states that if the price of product rises the supply of that product
will also increase and other factors remains constant.
For example- supply of
thumbs up in the market, so if the prices of thumbs up increases the retailers
wants to sell more of that.
Demand- it is the desire
that a customer has for acquiring a product which is backed by the purchasing
power of the consumer. Law of demand states that if the price of product rises
the demand falls and other factors remains constant.
For example- If the price
of thumbs up rises the customer will demand less for it because there are other
products in the same price level.
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