Generally, the demand curves slope downwards from left to right. One reason for this is that as the price of a commodity falls, people who were previously unable to buy it will enter the market and the amount of the commodity demanded will rise. But, there are other reasons too. Some people will buy the commodity in preference to other commodities which they bought before because its price has now fallen. Some people who bought some of the commodity even before its price fell will be able to buy more now because it is cheaper. The sloping downward trend of the demand curve only signifies the fact that more amounts is demanded at a lower price and less is demanded at a higher price is quite obvious in keeping with the law of demand.
In brief, a fall in price of a good, while it attracts new buyers to the market, also induces the old buyers to buy more of this good. The question that needs to be answered is why should the old buyers buy more of that good whose price has fallen? the answer is that a fall in the price of any goods produces two effects, which are called the Income Effect and the Substitution Effect; and both of these acting together, cause an expansion in the demand for the goods whose price has fallen, provided the good is a normal good and not a ‘Giffen good’. Here, it must be mentioned that a Giffen good is a very inferior good whose demand falls with a fall in price.
SUBMIT ASSIGNMENT NOW!