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Why Demand Curve Slopes Downward To The

Right?

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 aFe 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 unableto 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.

Exception to the Law of Demand.

There is no doubt that typical demand curve has a tendency to fall downward from left to

right But sometimes it can also happen that the demand curve may slope upward from left to

right: In other words, it may have a positively inclined curve. Fr instance, if people expectthe price to go up in the near future, they will purchase more commodities at a higher price.

Similarly, some of the articles of ostentation have a greater demand when their price rises and

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lesser demand when price falls.

Exception to the Law:

Some times, we find that with a fall in the price demand also falls and with a rise in price demand

also rises. These cases are referred to as exceptions to the general law of demand. The demand

curve in these cases will be an upward sloping. Some of these exceptions are:

1.Giffen goods or Inferior goods.

2.Prestige goods

3.Speculation

4.Price Illusion

These different types of exceptions are described in brief explanation as follows:-

Inferior goods:Some goods like potato, bread, vegetable oil etc. are called inferior goods. In the case of

these goods when their price falls, the real income or the purchasing power of the

consumer increases, this purchasing power is used to buy other superior goods. Such

inferior goods are named as 'Giffen goods'. An Irish economist Sir Robert Giffen observed

this tendency of the individuals in the 19th century.

Expectations and speculations:

When people expect a rise or fall in price in the near future, the law of demand does not

hold good. If a price rise is expected by next week, then they will buy more now itselfthough at present the prices are quite high.

Prestige goods:

Rich people like to show off their economic status. SO they buy prestige goods like colour

T.V., diamond etc. even at a higher price.

Price illusion:

There are certain consumers those who are always guided by the price of the commodity.

They always believe that higher the price, better the quality. Hence they purchase larger

quantities of high priced goods.

Demonstration effect:

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er.

Ignorance:

Sometimes due to ignorance of existIt refers to a tendency of low income groups to

imitate the consumption pattern of high income groups. They will buy a commodity to

imitate the consumption of their neighbors even if they don't have the purchasing powing

market price, and people buy more at a higher price.

Quality and Branded Goods:

Commodities of good standard and quality give proper value for money. They last long

and give good service. So people prefer to buy them even at a higher price.