Question

1. Why is the demand curve negatively sloped and not positively sloped? Explain by using the concept of Willingness to Pay (WTP).

Answer 1

The demand curve is negatively sloped indicating the relationship between the price of a product and the quantity demanded. For normal goods, a price change will be indicated as a move along the demand curve while a change that is nonprice will result in a shift in the demand curve. Demand theory is used to highlight the role that demand plays in formulation of price. The demand for a good or a service will be based on the utility to satisfy a want or need and the ability of the consumer to pay for the good or service. Real demand indicates the readiness to satisfy a want being backed up by an individual's ability and willingness to pay.