Explain the law of demand; 7 reasons why demand curve slopes down from left to right
- The law of diminishing marginal utility. As a person consumes more units of a commodity, the extra satisfaction derived from extra units of the same commodity diminishes. Therefore a consumer will only be willing to purchase more of the units at a lower price explaining a downward sloping curve.
- Substitution effect. As price of a commodity falls consumer purchase more units of the commodity and less of its substitutes. However, as its price rises, consumers purchase less of it and buy more of its substitutes. Thus at higher prices, less of a commodity is purchased and more is purchased at lower prices.
- Real income effect. As price of a commodity falls, the real income of the consumer increase and therefore he is able to buy more of a commodity at a lower price. But as the price rises, the real income of the consumer falls and is only able to buy less.
- Presence of low income earner. Ordinary people or low income earners buy more of a commodity when the price falls because that is when they can afford to purchase it. Increase in price of a commodity lowers demand. The rich do not affect the demand curve as they are well capable of buying more commodities even at high prices
- Commodities with different uses. As prices of these commodities increase consumer reduce the quantity demanded by only purchasing what is essential e.g. lighting n case of high price for electricity. However when prices reduce consumer demand for more to use for luxurious purpose.
- New buyers. Due to the fall in the price of a commodity new buyers get attracted towards it and buy it. Thus, this increases the demand for the commodity.
- Tendency To Satisfy Unsatisfied Wants. There is always a human tendency to satisfy unsatisfied wants. Each and every person has some unsatisfied wants. When the prices of goods, such as apples, falls, the consumer will buy more of that commodity as he wants to satisfy his unsatisfied wants. As a consequence of this habit of humans, the demand curve slopes downward to the right.
CATEGORIES Economics
TAGS Dr. Bbosa Science
