What is the correct answer?


The demand curve slopes downwards due to:

A. Income effect(I.E)

B. Substitution effect(S.E)

C. Taste effect

D. Both a and b

Correct Answer :

D. Both a and b

The demand curve slopes downward due to I.E and S.E. According to S.E when a price of a commodity falls, it becomes relatively cheaper than other substitute commodities and as a result of this S.E, the quantity demanded of the commodity whose price has fallen, rises. According to I.E when the price of a commodity falls, the consumers real income or purchasing power increases, so he buy more of that commodity. This is called I.E.)

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