Essays on Principles of Economics Assignment

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The paper "Principles of Economics" is an outstanding example of a micro and macroeconomic assignment. The above-plotted demand curve slopes downward from left to right thus having a negative slope because the two main variables, which are price and quantity, work in the opposite direction. As the price of the commodity decreases from 80 cents to 20 cents, the quantity demanded of apple increases over the period of time and the vice versa is very true, with all factors remaining constant. There are exist fundamental reasons as to why the demand curve slopes downward from left to right, they include; law of diminishing marginal utility, income effect substitution effect and the entry of new buyers. The law of demand is founded on the law of diminishing returns in that.

The cardinal utility approach states that when a consumer purchases more units of a given product or good, the marginal utility of the good declines. Thus, the consumer will purchase more units of the commodity if and only if the price falls. Income Effect- When the price of a good decrease, the purchasing power or the real income of the household increases.

Because of this, the consumer is in a position to purchase a greater number of commodities with the same amount of income. This has the effect of increasing the demand of the commodity not only for the existing buyer but also for the new buyers in the market. When at the lower price, the demand for the commodity is high thus; the demand curve is likely to slope downwards from left to right. Substitution effect – The substitution effect also causes the demand curve to slope downwards from left to right.

A good example is that when the price of meat drops and the price of the other substitutes such as beef and poultry remain constant, it is most likely that the consumers are likely to prefer to purchase the meat because the price will be relatively cheaper. In this case, the increase in the demand for meat is most likely to move the demand curve downwards, from left to right. The entry of new buyers- In most cases when the price of the commodity drops, the demand for the good not only increases among the old buyers but also new buyers tend to enter the market.

The combined effect of both the substitution and income effect results to the demand extending, ceteris paribus, as its price falls. This, therefore, leads to the demand curve sloping downwards from left to right.

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