The Causes for the Down Ward Sloping of the Demand Curve

THE CAUSES FOR THE DOWN WARD SLOPING OF THE DEMAND CURVE

i. Based on the law of diminishing ma rginal utility: The law of demand is based on the law of diminishing marginal utility. According to this law, when a consumer b uys more units of a commodity, the marginal utility of that commodity continues to decline therefore the consumer will buy more units of that commodity only when its price falls. W hen less units are available, utility and the consumer will be prepared to pay more for the commodity.

ii. Price effect: W ith the increase in the price as of the product many consumers will either reduce or stop its consumption and the demand will be reduced. Thus to the price effect when consumer consume more or less of the commodity, the demand curve slope downward.

iii. Income effect: When the p rice of a commodity falls the real income o f the consumer increase because he quantity. On the contrary with the rise in the price of the commodity the real income of the consumer falls. This is called the income effect.

iv.Substitution effect: The other effect o f change in the prices of the commodit y is the substitution effect. W ith the falls in the price o f a commodity the prices of its substitutes remaining the same consumer will buy more of this commodity rather that the substitutes. As a result its demand will increase.

v.  Persons in different income groups: There are person in different income groups in every

society but the majority is in low income gro up. The downward sloping demand curve depends upon this group. Ordinary people buy more when price falls and less when prices rise. The rich do not have any some quantity even at a higher price.

vi.Different uses of certain commodities: There are different uses of certain commodities and service that are responsible for the negative slope of the demand curve with the increase in the price of such products they will be used only for more important uses and their demand will fall.