| Posted on April 15, 2014 at 9:10 AM |
The demand curve slopes downward for the following three reasons:
1. Law of diminishing marginal utility - As you purchase an additional unit, your additional satisfaction decreases. Therefore, the price must fall for you to want to purchase more.
2. Substitution effect - As the price of a good increases, you look for cheaper alternatives to purchase.
3. Income effect - As the price of a good increases, your income has less purchasing power and you cannot afford to purchase as much.
AP Macroeconomics / AP Microeconomics Unit 1 Basic Economic Concepts
Categories: AP Macroeconomics, Macro Unit 1 Basic Economic Concepts, Micro Unit 1 Basic Economic Concepts
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