Economics Assignment

Q. Reasons why demand curve is downward sloping?

A demand curve slopes downward as it shows an inverse relationship between the
two variables that are quantity demanded and price. As the law of demand is based
on diminishing marginal utility as such with more units of goods consumed marginal
utility will fall. Hence consumers will consume up to the point where MU=P. Now the
consumer will only increase his consumption if the price of good falls. This shows
that if price falls, quantity demanded increase causing demand curve to slope
downwards.
Secondly enforcing ceteris paribus if the price of the commodity decreases, the real
income of the consumer will increase. As such they will consume more. Moreover
with the fall in prices new buyers will be attracted to consume the good as such
when prices get low quantity demanded increases.
Thirdly substitution effect also causes demand curve to slope downwards. For
instance if price of coke falls however prices of pepsi, gourmet remain constant as
such consumers will prefer coke due to reduction in prices and increased consumer
surplus. This depicts that a fall in prices in comparison to substitutes will increase
the demand curve making it as a downward sloping demand curve.

Submitted By: - MUJTABA AHMED SIDDIQUI

ERP: - 08530