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Questions
Explain why the demand curve slopes downwards.
Explain any four reasons for the demand curve to be downward sloping.
Why does the Demand curve slope downward? Explain.
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Solution
- 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.
- 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 the income effect.
- Substitution effect: In the 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.
- 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.
- 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.
Notes
Students should refer to the answer according to the question.
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Study the following diagram and answer the questions:
Questions:
- In which direction does the demand curve slope?
- What is the reason for the fall in demand of rice from Q0 to Q1?
Figures (A), (B) and (C) given below represent different types of Demand curves.
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| (A) | (B) | (C) |
What kind of goods do each of these Demand curves represent? Give a reason for each of the curves.
Draw a straight-line demand curve joining both the axes. Indicate the following on the demand curve.
Elasticity of demand is equal to zero
What does the downward slope of the demand curve indicate?
What causes movement along the demand curve, not a shift of the curve?
