Causes of Demand curve sloping downwards Causes of Demand curve sloping downwards

Causes of Demand curve sloping downwards


Causes of Demand curve sloping downwards

(1) Law of diminishing marginal utility:
The consumer in order to restore the new equilibrium between price and utility buys more of it so that the marginal utility falls with the rise in the amount demanded. So long the price of a commodity falls, the consumer will go on buying more amount of it so as to reduce the marginal utility and make it equal with new price. Thus, the shape and slope of a demand curve is derived from the slope of marginal utility curve.

(2) Income effect:
As the price of a commodity falls, the consumer has to buy the same amount of the commodity at less amount of money. After buying his required quantity he is left with some amount of money.
This constitutes rise in his real income. This rise in real income is known as income effect. This increase in real income induces the consumer to buy more of that commodity. Thus income effect is one of the reasons why a consumer buys more at falling prices.

(3) Substitution effect:
When the price of a commodity falls, it becomes relatively cheaper than other commodities. The consumer substitutes the commodity whose price has fallen for other commodities which becomes relatively dearer. For example, with the fall in price of tea, coffees, Price being constant, tea will be substituted for coffee. Therefore the demand for tea will go up.

(4) New consumers:
When the price of a commodity falls many other consumers who were deprived of that commodity at the previous price become able to buy it now as the price comes within their reach. For example, the units of color TV increases with a remarkable fall in price of it. The opposite will happen with a rise in prices.

(5) Multiple use of commodity:
There are some commodities which have multiple uses. Their uses depend upon their respective, prices. When their prices rise they are used only for certain selected purposes. That is why their demand goes down.For example electricity can be put to different uses like heating, lighting, cooling, cooking etc. If its price falls people use it for other uses other than that. A rise in price of electricity will force the consumer to minimize its use. Thus with a fall and rise in price of electricity its demand rises and falls accordingly.

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