Page 25 - DECO101_MICRO_ECONOMICS_ENGLISH

Micro Economics

Notes A demand curve considers only the price-demand relation, other factors remaining the same.
The inverse relationship between the price and the quantity demanded for the commodity per
time period is the demand schedule for the commodity and the plot of the data (with price on the
vertical axis and quantity on the horizontal axis) gives the demand curve of the individual.

Example:

An Individual’s Demand Schedule for Commodity X
Price x (per Unit) Px Quantity of x demanded (in Units) Dx
2.0 1.0
1.5 2.0
1.0 3.0
0.5 4.5

Price of x

Demand of x

Demand Curve

The Demand curve is negatively sloped, indicating that the individual purchases more of the
commodity per time period at lower prices (other factors being constant).
The inverse relationship between the price of the commodity and the quantity demanded per
time period is referred to as the Law of Demand.
A fall in Px leads to an increase in Dx (so that the slope is negative) because of the substitution
effect and income effect.

Note Why Demand Curve Slopes Downward?
The first reason for the validity of downward sloping demand curve is that the lower

prices bring in new buyers. Secondary, when the price of a commodity declines, the real
income or purchasing power of the consumers increases which induced them to buy of this
commodity. This is known as the income effect. Thirdly, when the price of a commodity
falls while prices of all other goods remain constant, the commodity becomes relatively
cheaper. This induces the consumers to substitute this commodity in place of other
commodities which have been relatively dearer. This is known as substitution effect.

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