Question

explain in detail why the demand curve slopes downward

Answer 1

The demand curve slopes downwards because of following reasons:

1. Law of diminishing marginal utility: The law of diminishing utility states that as the consumption of a good increase the utility derived from the consumption of additional unit of good decreases. So, when the utility derived is less with the increase in quantity of good, consumer would not be interested to pay more for the good, hence demand curve slopes downwards with the increase in price

2. Substitution effect: When there are many substitutes available in the market, and any increase in price would lead to decrease in quantity of good as people would switch to other alternatives.

3. Income effect: It refers to change in purchasing power, so when the price level falls, the purchasing power increases and more goods are demanded, hence the demand curve slopes downwards.

So, a demand curve would slope downward because of law of diminishing marginal utility, substitution effect and income effect.