The
demand curve generally slopes downward from left to right. It has a
negative slope because the 2 important variables price & quantity
work in opposite direction. As the price of a commodity decreases, the
quantity demanded increases over a specified period of time & vice
versa, other things remaining constant. The reasons for demand curve to
slope downward r as follows:
(i) Law of diminishing marginal utility: The law of demand is based on the law of diminishing marginal utility. According to the cardinal utility approach, when a consumer purchases more units of a commodity, its marginal utility declines. The consumer, therefore, will purchase more units of that commodity only if its price falls. Thus, a decrease in price brings about an increase in demand. The demand curve, therefore, is downward sloping.
(ii) Income effect: Other things being equal, when the price of a commodity decreases, the real income or the purchasing power of the household increases. The consumer is now in a position to purchase more commodities with the same income. The demand for a commodity thus increases not only from the existing buyers but also from the new buyers who were earlier unable to purchase at higher price. When at a lower price, there is a greater demand for a commodity by the households„ the demand curve is bound to slope downward from left to right.
(iii)
Substitution effect: Let the Price of meat falls & the prices of
other substitutes say poultry remain constant. Then the households would
prefer to purchase meat because it is now relatively cheaper. The
increase in demand with a fall in the price of meat will move the demand
curve downward from left to right.
(iv) Entry of new buyers: When the price of a commodity falls, its demand not only increases from old buyers but the new buyers also enter the market. The combined result of the income & substitution effect is that demand extends, ceteris paribus, as the price falls. The demand curve slopes downward from left to right.
(i) Law of diminishing marginal utility: The law of demand is based on the law of diminishing marginal utility. According to the cardinal utility approach, when a consumer purchases more units of a commodity, its marginal utility declines. The consumer, therefore, will purchase more units of that commodity only if its price falls. Thus, a decrease in price brings about an increase in demand. The demand curve, therefore, is downward sloping.
(ii) Income effect: Other things being equal, when the price of a commodity decreases, the real income or the purchasing power of the household increases. The consumer is now in a position to purchase more commodities with the same income. The demand for a commodity thus increases not only from the existing buyers but also from the new buyers who were earlier unable to purchase at higher price. When at a lower price, there is a greater demand for a commodity by the households„ the demand curve is bound to slope downward from left to right.
(iii)
Substitution effect: Let the Price of meat falls & the prices of
other substitutes say poultry remain constant. Then the households would
prefer to purchase meat because it is now relatively cheaper. The
increase in demand with a fall in the price of meat will move the demand
curve downward from left to right.(iv) Entry of new buyers: When the price of a commodity falls, its demand not only increases from old buyers but the new buyers also enter the market. The combined result of the income & substitution effect is that demand extends, ceteris paribus, as the price falls. The demand curve slopes downward from left to right.
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