The Demand Curve : (Back to school)

The Demand curve represents the curve that shows the relation between price of the commodity and that of quantity demanded by the consumer. Lets try to analyse the causes of the demand curve slopping downside :

1) Due to law of diminishing marginal utility.
2) Income effects
3) Substitution effect
4) Commodity usages
5) Consumers in total.

  •  Due to law of diminishing marginal utility :

The law of diminishing marginal utility comes into force when a consumer buys additional quantities of a particular commodity. The law states that as a consumption of commodity by a consumer increases the satisfaction from each additional unit decreases. The basic example : 1st glass of water gives you more satisfaction than the 2nd and subsequent glasses of water.

  •  Income effects:

Fall in the prices of a commodity results in the rise of consumers real income and also increases the purchasing power of consumers and therefore the consumers purchase more & vice-versa. Trying to put the example of Sugar if the prices fell the consumer still left with extra money and he can buy addition quantity.

  •  Substitution effect :

It reflects if there is rise in the prices of the commodity while the price of substitute remains constant than consumer tries to shift from one commodity to other commodity. an example to quote here . If the prices of the tea rises the consumer can substitute it with coffee as its price may be less than tea.

  •  Commodity usages :

Some commodity utility are not limited to a certain extent , they can be further utilised and for various other purposes. examples : Coal, Oil, electricity

  •  Consumers in total :

When the price of the commodity increases the number of consumers decreases and when the price of the commodity decreases the no. of consumers will increase.

There are certain exceptions to the above that I could recall :

  1. In case if the commodity is distinctive.
  2. In case if the commodity is inferior or giffin goods
  3. Ignorance on the part of consumers.
  4. Exception of rise and fall in prices (speculation)

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