Answer:
Following factors are responsible for the inverse relationship between price of a commodity and demand: (i) Law of Diminishing Marginal Utility This law states that "with the continuous consumption of additional units of a commodity, the utility from each successive unit goes on diminishing and can even become zero or negative." e.g. utility derived from first chapati by a hungry man is maximum, utility from second chapati is lesser, from third still lesser and so on. As a result, the consumer will buy additional chapati at a lower price only, since utility derived from additional unit is lower. Therefore, the consumer buys more only at lower price. (ii) Income Effect Real income is that income which is measured in terms of goods and services. A change in the quantity demanded is a result of change in real income caused by change in price of the commodity which is called income effect. When price of a commodity falls, less money has to be spent on purchase of that commodity, thus, with saved income, a consumer can buy more quantity of that good. A fall in price increases the real income of a consumer and therefore, he buys more when price falls. (iii) Substitution Effect It refers to the substitution of one commodity in place of other commodity when it becomes relatively cheaper, e.g. a rise in the price of tea means that relative price of coffee has fallen in relation to that of tea. The consumer wants to maximise his satisfaction, therefore, he will buy more of coffee and less of tea. This is called substitution effect, since tea has been substituted by coffee.
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