Answer to Question #212176 in Microeconomics for Cindy

Question

When differentiating the law of demand and law of supply , besides explaining the price increase and Qd decrease and vice versa, can I include substitute effect and law of diminishing for the law of demand in my explanation? does it consider a difference?

Answer 1

One can explain the law of demand using substitution effect and law of diminishing. This is because a change of demand is due to the change in its price compared to its substitutes. The law of diminishing demand states that an individual’s satisfaction gets lessened according to the satisfaction they get from the good.