How can a downward sloping curve be explained

The plotting of the aggregated quantity to price pairings is what is referred to as an aggregate demand curve. In this manner, the demand curve for all consumers together follows from the demand curve of every individual consumer. The demand curve in combination with the supply curve provides the market clearing or equilibrium price and quantity relationship. This is found at the intersection or point at which the supply and demand curves cross each other.

Market demand is the summation of the individual quantities that consumers are willing to purchase at a given price. The demand schedule represents the amount of some good that a buyer is willing and able to purchase at various prices. The relationship between price and quantity demanded reflected in this schedule assumes the following factors remain constant:. The demand schedule is depicted graphically as the demand curve.

The demand curve is shaped by the law of demand. In general, this means that the demand curve is downward-sloping, which means that as the price of a good decreases, consumers will buy more of that good. Demand Curve : The demand curve is the graphical depiction of the demand schedule. For most goods and services, the demand curve exhibits a negative relationship between price and quantity and is as a result downward sloping.

A market demand schedule is a table that lists the quantity of a good all consumers in a market will buy at every different price. A market demand schedule for a product indicates that there is an inverse relationship between price and quantity demanded. The graphical representation of a market demand schedule is called the market demand curve.

Market Demand Schedule : A market demand schedule is a table that lists the quantity of a good all consumers in a market will buy at every different price. The market demand is the summation of the individual quantities that consumers are willing to purchase at a given price. As noted, both individual demand curves and market demand are typically expressed as downward shaping curves.

However, special cases exist where the preference for the good or service may be perverse. Two different hypothetical types of goods with upward-sloping demand curves are Giffen goods an inferior but staple good and Veblen goods goods characterized as being more desirable the higher the price; luxury or status items. Economics seeks to interpret, analyze and or evaluate situations that occur between individuals, firms and other entities.

When the ceteris paribus assumption is employed in economics, all other variables — with the exception of the variables under evaluation — are held constant. What would happen to the demand for labor by firms if a minimum wage was imposed at a level above the prevailing wage rate, ceteris paribus? As depicted in below, the supply and demand curve are held constant, as are labor and leisure preferences for workers, and output considerations for firms, in addition to all other variables and characteristics embedded within the shape of the supply and demand curves.

Thus, what is being evaluated is the impact of a constraint on market equilibrium. The demand curve illustrates what's known in economics as the law of demand: Consumers buy more of something when its price is lower and less when the price is higher. There is an inverse relationship between price and demand, meaning that when one rises, the other falls. This model is meant to describe the behavior of consumers in the aggregate, not as individuals.

Your demand for a particular item may not be particularly price sensitive, but there will always be someone whose demand is dependent on price. The demand curve can be plotted on a graph. The vertical axis of the graph represents the price of the good in question; the horizontal axis represents the quantity demanded. The two axes meet at zero in the lower left corner. Sign in with your library card Please enter your library card number.

Related Content Related Overviews Giffen good. Show Summary Details Overview downward-sloping demand curve. Reference entries downward-sloping demand curve in A Dictionary of Economics 3 Length: 78 words.

View all related items in Oxford Reference » Search for: 'downward-sloping demand curve' in Oxford Reference ». All rights reserved. Sign in to annotate. 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. Giffen goods are those which are consumed in greater quantities when their price rises. These goods are named after the Scottish economist Sir Robert Giffen , who is credited with identifying them by Alfred Marshall in his highly influential Principles of Economics In essence, a Giffen good is a staple food, such as bread or rice, which forms are large percentage of the diet of the poorest sections of a society, and for which there are no close substitutes.

From time to time the poor may supplement their diet with higher quality foods, and they may even consume the odd luxury, although their income will be such that they will not be able to save. A rise in the price of such a staple food will not result in a typical substitution effect, given there are no close substitutes.