Monday, April 27, 2020

Negative slope of the demand curve.

Why is the demand curve downward sloping?

 The demand curve is downward sloping because of two effects;
 1) Income effect  and 2) Substitution effect 

1) Income effect is because of a fall in the price of a commodity, there is a  rise  in the real income of the  consumers. As his real income increases he can buy the same good or other goods from the same income. Likewise when the price of the commodity increases his real income falls and therefore the consumer purchases less commodities. 

2 . Substitution effect:  Likewise when the price of a commodity falls but the price of its substitutes does not fall, then the commodity becomes more attractive for the consumer and there is an extension in its demand.

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