>> Tuesday, May 19, 2009
There are following reasons of negative or downward sloping of demand curve
Effect of law of diminishing marginal utility
Main reason of negative slop of demand curve is the effect of diminishing marginal utility . According to this law , the consumer will consume one more unit at less price because according to this law , next unit will give him less marginal utility and he will not interested to pay high for low utility product . So , according to this law , if prices decreases the demand will increase and slop of demand curve will be downward .
Effect of Income
when a buyer purchase goods at a certain price , if the price of this product will decrease , at that time buyer's real income will increase . He will capable to buy more . So , after decreasing of prices , buyer will buy more goods and trend of demand will increase . This is due to income changing effect and slop of demand curve will be downward .
If the price of any product will decrease , the buyers can also these products for other uses . Suppose , if the price of potato is $ 5 , I will use for only as my food , if the price of potato is $ 0.10 , I will use it for my pet cows and also other animals . So , for more usages , demand of product will increase and slop of demand curve will decreases .
One the price of any product decrease , new buyers who can not buy this product due to high price , they will also buy this and the demand of this product will increase and it will negative the slop of demand curve . This the simple reason why demand curve's slop downward .