The slope of the demand curve The demand curve generally slopes downward from left to right. It has a negative slope because of the two important variables price and quantity work in the opposite direction. The fundamental reasons for the demand curve to slope downward are as follows: Law of Diminishing Marginal Utility Law of Equi-Marginal Utility Income Effect Substitution Effect

1. Slope of the demand curve
Unit 10
Instructor:
Atta Hussain Syed

2. SLOPE OF THE DEMAND CURVE
• The demand curve generally slopes downward from left to
right.
• It has negative slope because the two important variables
price and quantity work in opposite direction.
• The fundamental reasons for demand curve to slope
downward are as follows:
1. Law of Diminishing Marginal Utility
2. Law of Equi-Marginal Utility
3. Income Effect
4. Substitution Effect

3. 1.LAW OF DIMINISHING MARGINAL
UTILITY
• As the consumer buys more and more of the commodity,
the marginal utility of the additional units falls.
• Therefore the consumer is willing to pay only lower prices
for additional units.
• If the price is higher, he will restrict its consumption

4. 2.LAW OF EQUI-MARGINAL UTILITY
• Consumer will arrange his purchases in such a way that the
marginal utility is equal in all his purchases.
• If it is not equal, they will alter their purchases till the
marginal utility is equal.
• When a consumer consumes more than one good with his
limited income, he will consume them in such a way that
the gets the same Marginal Utility from the last unit of
money spent on each of these goods so, that his Total
Utility is maximum.

5. 3.INCOME EFFECT
• Other things remaining equal, when the price of a
commodity decreases, the real income or purchasing
power of consumer increases.
• The consumer is now in a position to purchase more
commodities with the same income.

6. 4.SUBSTITUTION EFFECT
• Demand curve also lopes downward from left to right also
because of the substitution effect.

7. 4.SUBSTITUTION EFFECT
• For Example: If the price of meat falls and the prices of
other substitutes say poultry and beef remain constant.
• Then the consumers would prefer to purchase meat
because of it is now relatively cheaper.