A downward sloping demand curve means that?

A. total revenue declines as the price is lowered
B. demand falls as output rises
C. demand falls as output falls
D. price must be lowered to sell more

Correct Answer: Option B

Explanation

The downward sloping demand curve means a rational consumer will demand more of a commodity when its price falls. Some of the reasons for.the phenomenon would be Income Effect: When the price of a commodity falls, consumer’s real income rises that is he can now purchase more of the commodity with the same income.

Causes of Downward Sloping of Demand Curve

• Law of diminishing the marginal utility
• Substitution effect
• Income effect
• New buyers
• Old buyers

1. Law of diminishing the marginal utility
The law of diminishing marginal utility states that with each increasing quantity of the commodity, its marginal utility declines.

For example, when a person is very hungry the first chapatti that he eats will give him the most satisfaction. As he will consume more chapattis, his level of satisfaction will diminish.

Thus, when the quantity of goods is more, the marginal utility of the commodity is less. Thus, the consumer is not willing to pay more price for the commodity and its demand will decline.

Also, when the price of the commodity is low, its demand increases.

Hence, the demand curve slopes downwards from left to right.