Question

In two to three sentences, explain the law of downward-sloping demand.

Answer 1

Demand is downward sloping because as the price increases ceteris paribus, consumers are willing to purchase less of the given good or service. On the other hand, as prices decrease the quantity demanded by consumers for the particular good or service will increase. This is because the price has become more attractive to consumers and because they will be able to afford more of the good or service. This shows that the demand curve is inversely related to changes in the price of a good or service.

Answer 2

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.