You are here


8 May, 2015 - 10:34

The law of demand can be explained by - price being an obstacle to consumption, - diminishing marginal utility, - price change income effect and substitution effect. It can also be derived from the diminishing marginal rate of substitution of indifference curves.

All department stores have periodic sale days during which prices are reduced substantially. The purpose of this price reduction is to get rid of old merchandise and stimulate the buying by customers (who may purchase many other items as well). Thus, stores take advantage of the law of demand: merchandise which would otherwise be hard to sell, is sold because customers are willing to pay a lower price.