Slope of the Demand Curve:
Demand Curve is Negatively
Sloped:
The demand
curve generally slopes downward from left to right. It has a negative slope
because the two important variables price and quantity work in opposite
direction. As the price of a commodity decreases, the quantity demanded
increases over a specified period of time, and vice versa, other , things
remaining constant.
The
fundamental reasons for demand curve to slope
downward are as follows:
(i) Law of
diminishing marginal utility: The law of demand is based on the
law of
diminishing marginal utility. According to the cardinal utility approach, when a
consumer purchases more units of a commodity, its marginal utility declines. The
consumer, therefore, will purchase more units of that commodity only if its
price falls. Thus a decrease in price brings about an increase, in demand. The
demand curve, therefore, is downward sloping.
(ii)
Income effect: Other things being equal, when the price of a commodity
decreases, the real income or the purchasing power of the household increases.
The consumer is now in a position to purchase more commodities with the same
income. The demand for a commodity thus increases not only from the existing
buyers but also from the new buyers who were earlier unable to purchase at
higher price. When at a lower price, there is a greater demand for a commodity
by the households, the
demand curve
is bound to slope downward from left to right.
(iii)
Substitution effect: The demand curve slopes downward from left to right
also because of the substitution effect. For instance, the price of meat falls
and the prices of other substitutes say poultry and beef remain constant. Then
the households would prefer to purchase meat because it is now relatively
cheaper. The increase in demand with a fall in the price of meat will move the
demand curve downward from left to right.
(iv) Entry
of new buyers: When the price of a commodity falls, its demand not only
increases from the old buyers but the new buyers also enter the market. The
combined result of the income and substitution effect is that demand extends,
ceteris paribus, as the .price falls. The demand curve slopes downward from left
to right.
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