Why Demand Curve Slopes Downward?

Downward sloping of demand curve-The demand of a product refers to the desire of acquiring it by the consumer but backed by his purchasing power and willingness to pay the price. The law of demand states that there is an inverse proportional relationship between price and demand of a commodity. When the price of commodity increases, its demand decreases.

Similarly, when the price of a commodity decreases its demand increases. The law of demand assumes that the other factors affecting the demand of a commodity remain the same.

Thus, the demand curve is downward sloping from left to right. Let us discuss in detail why demand curve slopes downward.

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There may be various reasons for the falling nature or downward sloping of demand curve. Some of them are as follows:

causes of downward sloping of demand curve

Causes of Downward Sloping of Demand Curve

Law of diminishing the marginal utility
Substitution effect
Income effect
New buyers
Old buyers

1. Law of diminishing the marginal utility

The law of diminishing marginal utility states that with each increasing quantity of the commodity, its marginal utility declines.

For example, when a person is very hungry the first chapatti that he eats will give him the most satisfaction. As he will consume more chapattis, his level of satisfaction will diminish.

Thus, when the quantity of goods is more, the marginal utility of the commodity is less. Thus, the consumer is not willing to pay more price for the commodity and its demand will decline.

Also, when the price of the commodity is low, its demand increases.

Hence, the demand curve slopes downwards from left to right.

2. Substitution effect

Let us understand this with an example. Tea and coffee are substitute goods. If the price of tea rises, consumers will shift to coffee.

This will decrease the demand for tea and increase the demand for coffee. Thus, the demand curve of tea will slope downwards.

3. Income effect

Income effect refers to the change in the real income or the purchasing power of the consumers. When the price level falls the purchasing power of the consumer’s increases and they buy more goods.

Similarly, when the price level rises, the purchasing power of the consumer’s decreases and they buy less quantity of goods.

Learn more about the Law of Demand here in detail.

4. New buyers

Due to the fall in the prices of a commodity new buyers get attracted towards it and buy it. Thus, this increases the demand for the commodity.

5. Old buyers

When the prices of the goods fall the old buyers tend to buy more goods than usual thereby increasing its demand. This causes the downward sloping of demand curve.

Solved Question on Demand Curve

How does a change in the income of the consumer affects the demand for goods?

Ans.

When the income of the consumer’s increases they purchase more goods and vice-versa. Thus, income and demand have a directly proportional relationship. This implies that the demand curve slopes upward from left to right. This holds true in case of superior or normal goods only.

However, this is not the case of inferior goods. Inferior goods are goods of low quality. Thus, when the income of the consumer increases he will refrain from buying the inferior goods and shift to buying superior or normal goods. So, the demand curve will slope downwards from left to right.

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