This is not a logical necessity: it is theoretically possible for Giffen goods to exist. Such goods have a positive income effect that more than offsets the negative substitution effect of a price rise, so producing an upward-sloping demand curve. See also law of demand. From: downward-sloping demand curve in A Dictionary of Economics ».
Subjects: Social sciences — Economics. View all related items in Oxford Reference ». Search for: 'downward-sloping demand curve' in Oxford Reference ».
This shows that the demand curve is always downward. The volume to which a curve slopes decreases may vary however its downward direction is inevitable. Such a downward slope of demand curves from left to right explains the law of demand. This occurs due to the inverse relationship between price and demand. There can be many reasons for the falling nature or downward slope of the demand curve. A number of them are as follows:. Causes of the downward slope of the demand curve Law of demand.
Substitution effect. Earnings impact. New consumers. Antique consumers. It does not store any personal data. Functional Functional. Functional cookies help to perform certain functionalities like sharing the content of the website on social media platforms, collect feedbacks, and other third-party features.
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The cookie is set by GDPR cookie consent to record the user consent for the cookies in the category "Functional". Most benefit is generated by the first unit of a good consumed because it satisfies most of the immediate need or desire.
A second unit consumed would generate less utility — perhaps even zero, given that the consumer has less need or less desire. With less benefit derived, the rational consumer is prepared to pay rather less for the second, and subsequent, units, given that the marginal utility falls.
Consider the following figures for utility derived by an individual when consuming bars of chocolate. While total utility continues to rise from extra consumption, the additional marginal utility from each bar falls.
If marginal utility is expressed in a monetary form, the greater the quantity consumed the less the marginal utility and the less value derived — hence the rational consumer would be prepared to pay less for that unit. If marginal utility is expressed in a monetary form, the greater the quantity consumed the lower the marginal utility and the less the rational consumer would be prepared to pay.
The income and substitution effect can also be used to explain why the demand curve slopes downwards. If we assume that money income is fixed, the income effect suggests that, as the price of a good falls, real income — that is, what consumers can buy with their money income — rises and consumers increase their demand.
Therefore, at a lower price, consumers can buy more from the same money income, and, ceteris paribus , demand will rise. Conversely, a rise in price will reduce real income and force consumers to cut back on their demand. In addition, as the price of one good falls, it becomes relatively less expensive. Therefore, assuming other alternative products stay at the same price, at lower prices the good appears cheaper, and consumers will switch from the expensive alternative to the relatively cheaper one.
It is important to remember that whenever the price of any resource changes it will trigger both an income and a substitution effect. It is possible to identify some exceptions to the normal rules regarding the relationship between price and current demand.
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