Question

Explain why the demand curve slopes downwards.

Answer 1

Reasons justifying downward downward-sloping demand curve are as follows:

1. Law of Diminishing Marginal Utility: We have seen that marginal utility goes on diminishing with an increase in the stock of a commodity and vice-versa. Therefore, a consumer tends to buy more when the price falls and vice-versa. This implies that the demand curve is downward sloping.
2. Income effect: In the case of normal goods, when price falls, purchasing power (real income) of a consumer increases which enables him to buy more of that commodity. This is known as income effect.
3. Substitution effect: In case of substitute goods, when the price of a commodity rises, the consumer tends to buy more of its substitute and less of that commodity whose price has increased. This is known as the substitution effect.
4. Multi-purpose uses: When a commodity can be used for satisfying several needs, its demand will rise with a fall in its price and fall with a rise in its price.
5. New Consumers: When the price of a commodity falls, a new consumer class appears who can now afford the commodity. Thus, total demand for commodities increases with a fall in price.