Question

The downward slope of the demand curve is attributed to:

a.the direct relationship between income and quantity demanded.

b.the direct relationship between consumer preferences and quantity demanded.

c.inverse relationship between income and quantity demanded.

d.the inverse relationship between price and quantity demanded.

e.the direct relationship between price and quantity demanded.

Answer 1

Option B

• The downward slope of the demand curve is attributed to the inverse relationship between price and quantity demanded.
• The three main reasons for the downward slope of demand curve are:

1. Law of diminishing marginal utility:-

According to this law when the consumers consume larger amount of a product as a result of increase in marginal utility, the price decreases.

2. Income effect:-

According to the income effect, as the price of a good falls, income of consumers Increases which Increases the demand for goods.

3. Substitution effect:-

When the price of a good becomes cheaper the consumers will prefer buying these cheaper goods rather than the expensive ones. Hence the substitution effect.