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Goods and services are produced because the consumers demand them. Consumers demand goods and services because they have utility. Demand is the quantity of a commodity that a person is ready to buy at a particular price and during a specific period. The demand for a product changes with cost and time, making it a relative concept. We study the demand curve under the ‘Law of Demand’. The demand for a commodity can be studied by either an individual demand curve or a market demand curve. Market demand is the total of all particular demands.
Demand
In economic terms, demand means desire backed by the willingness and ability to pay. Demand is basically how more or less of a commodity is demanded by an individual or in a market with an increase and decrease in price and other factors during a particular time. Demand has three features-
The utility is the base of demand
Demand is a relative concept
Reference of price and time is necessary for demand
The demand curve simply shows these fluctuations in price and demand of a commodity on a graph via the ‘Law of Demand’.
Law of Demand
This law is one of the most fundamental laws of consumption. It was explained by Professor Alfred Marshall, who is the father of microeconomics, in his book ‘Principles of Economics’ in 1890.
Professor Alfred Marshall states that “other things being constant the higher the price of the commodity, smaller is the quantity demanded and lower the price of the commodity larger is the quantity demanded”.
This law explains the change in consumer demand behaviour with a difference in commodity prices. Marshall’s Law of Demand describes the functional relationship between demand and cost. It is expressed as:
D= f (P)
This is the demand function of price.
The relationship between price and demand is inverse because, with the price rise, demand falls, and with the fall in price, demand rises.
Let us look at this consumer behaviour using an individual demand curve and study the slope of the demand curve.
Demand Schedule
As shown in this schedule, when the price of commodity X is Rs. 50 the demand is 1 unit. When the price falls to Rs. 40 the demand rises to 2 units. Similarly, when the price drops to Rs. 10, the demand increases to 5 units. This clearly shows the inverse relationship between price and demand.
Now let us plot this on an individual demand curve.
Demand Curve
As you can see, the X-axis represents the quantity demanded of commodity X, and the Y-axis shows the price of commodity X. DD is the demand curve. The demand curve slope is left to the right downward sloping straight line. The demand curve slope is negative due to the inverse relationship between price and demand.
Why does the slope of demand curve slope downwards from left to right?
There are several reasons behind the downward sloping of the demand curve. They are as follows:
The law of diminishing marginal utility: In this law, the marginal utility of a commodity goes on diminishing with an increasing stock of commodity. Therefore, a consumer tends to buy more when the price falls.
Income effect: When price falls, purchasing power of a consumer rises, which enables him to buy more of that commodity whose price falls. This is called the income effect.
Substitution effect: In the case of substitute goods, when the price of a commodity rises, the substitute of that commodity becomes relatively cheaper. Therefore, a consumer will purchase more of that commodity.
Multipurpose uses: When a commodity can be used for satisfying several needs, its demand will rise with a fall in price and fall with the price rise.
Therefore, this was the concept of the demand curve and its slope.
Conclusion
The concept of demand is not something that is to be deeply analysed. It is a fact that we face in our day-to-day life. The Law of Demand explains a very natural behaviour of the consumer that we, too, have felt in our lives. We wait for clothes to go on sale; this is an example of demand. When studied in technical and economic terms, understanding and plotting the demand schedule and demand curve are very important. The question about the demand curve slope is a common question asked in examinations. This topic is relatively easy to prepare as it is more practical and relatable.
