Why do demand curves slope downward

This occurs due to the inverse relationship between price and demand. There can be many reasons for the falling nature or downward slope of the demand curve.

A number of them are as follows:. Causes of the downward slope of the demand curve Law of demand. Substitution effect. Earnings impact. New consumers. Antique consumers. The law of demand states that with ever-increasing amounts of the commodity, its demand declines. As an example, whilst someone is hungry, the first chapati that he eats will provide him with the most pride. As he's going to eat chapatis, his degree of satisfaction will diminish.

For example , if the price of pizzas comes down, while the price of burgers remains the same, pizzas will become relatively burgers cheaper. The demand for pizzas will increase as compared to burgers. When the price of a commodity decreases, the number of consumers of the commodity increases.

This leads to a rise in the demand for the commodity. For example , when the price of apples is per kg, only a few people purchase it. However, when the price of apples falls down to 60 per kg, more number of people can afford it. There are certain commodities that can serve more than one purpose. For example, milk, steel, oil, etc.

However, some uses are more important over others. When the price of such a commodity is high, it will be used to serve important purposes. Thus, the demand will be low.

On the other hand, when the price of the commodity falls, it will be used for less important purposes as well. Thus, the demand will increase. For example , when the price of electricity is high, it is used only for lighting purposes, whereas when the price of electricity goes down, it is also used for cooking, heating, etc. Also Read: What is Demand Function?

Click on Topic to Read. Go On, Share article with Friends. Did we miss something in Business Economics Tutorial? Come on! Tell us what you think about our article on What is Demand Curve Business Economics in the comments section. Save my name, email, and website in this browser for the next time I comment. Skip to content Post last modified: 21 January Reading time: 7 mins read. If the real incomes of the poor increase they would tend to reallocate some of this income to luxuries, and if real incomes decrease they would buy more of the staple good, meaning it is an inferior good.

Assuming that the money incomes of the poor are constant in the short run, a rise in price of the staple food will reduce real income and lead to an inverse income effect.

However, most inferior goods will have substitutes, hence despite the inverse income effect, a rise in price will trigger a substitution effect, and demand will fall. In the case of a Giffen good, this typical response does not happen as there are no substitutes, and the price rise causes demand to increase. They cannot reduce their consumption of bread, given that their current consumption is the minimum they require, and they cannot find a suitable substitute for their stable food.

Veblen goods are a second possible exception to the general law of demand. According to Veblen, a rise in the price of high status luxury goods might lead members of this leisure class to increase in their consumption, rather than reduce it.

The purchase of such higher priced goods would confer status on the purchaser — a process which Veblen called conspicuous consumption. See: shifts in demand. See: indifference curves. Stagflation is a combination of high inflation, high unemployment, and stagnant economic growth. Because inflation isn't supposed to occur in a weak economy, stagflation is an unnatural situation. Slow growth prevents inflation in a normal The laissez-faire economic theory centers on the restriction of government intervention in the economy.

According to laissez-faire economics, the economy is at its strongest when the government protects individuals' rights but otherwise doesn't intervene. The demand curve is usually drawn as a continuous line and it is based on the assumption that there exists a price of every unit of a commodity, however small, and the individual or the market responds to very small changes in the market price.

But, this assumption is not always true. The law of demand may now be illustrated. Table 1 shows a market demand schedule and Fig. The table shows that the quantity demanded of a commodity is small at a high price and large at a low price. In other words, the table illustrates the law of demand. The law is now illustrated with the help of Fig. In Fig. We have considered three price-quantity combinations as are indicated by three points: a, b, and c.

The locus of these and similar points is the demand curve, dd. In this context, we draw a distinction between demand and quantity demanded. The quantity shown on the horizontal axis is a desired flow. By joining points like a, b, c, etc. The figure shows that the demand curve slopes downward from left to right, indicating a large quantity at a low price and a small quantity at a high price.

The demand curve is downward sloping because, as per the law of demand price change and quantity change are in the opposite direction. In other words, due to the operation of the law of demand a typical demand curve has a negative slope. The demand curve for a normal good slopes downward from left to right for the following reasons:.

The law of demand is a logical deduction from the fundamental psychological law, viz. This law simply states that, the marginal utility of a commodity is high when quantity demanded is low and is low when the quantity demanded is high. When a consumer reaches equilibrium by equating the marginal utility of a commodity with its price, marginal utility must be high at small purchases or when the price is high the quantity demanded will be small.

On the other hand, the price must be low at large purchases or when the price is low the quantity demanded will be large. It shows that the law of demand is derived directly from the law of diminishing marginal utility. In fact, the marginal utility of a commodity indicates the maximum price a consumer is ready to pay for a commodity.

As the. This means that the consumer will be ready to pay less and less price to acquire every additional unit that he intends to buy.

This means that he will buy more and more units, if and only if the price of the commodity under consideration falls.