Why is the demand curve downwards sloping?

The demand curve slopes downwards due to the idea of diminishing marginal utility. This is the idea that the consumer receives less additional utility for each extra unit of the good consumed.The substitution effect can explain this to an extent because as the price of one good falls, consumers choose to substitute their expenditure to different goods which may be cheaper. Where there are many substitutes available, it is very likely that the demand will decrease as price increases due to consumers switching to cheaper alternatives.The income effect is the idea that if the price of a good increases, effectively the persons disposable income falls because a larger proportion of their income is spent on consumption of the good. Therefore as the price increases they feel worse off, causing the demand curve to sloe downwards.

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Answered by Joanna B. Economics tutor

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