Answer to Question #146893 in Microeconomics for zohan

Question

a) Elaborate on the concepts of Demand Schedule and Demand Curve, is there any relationship between them? What is reason behind the downward slope of demand curve?

Answer 1

The demand curve illustrates the quantity demanded at various prices while the demand schedule is a row data that gives prices and their corresponding quantities, usually given in the tabular form.

The demand curve and demand schedule usually explain the relationship between price and quantity.

Reason behind the downward slope of demand curve are:

• Income effect - which is the change in in the real income or the purchasing power of the consumers. Falling of price levels causes an increase in purchasing power of the consumers, and they buy more goods. Similarly, when the price level rises, the purchasing power of the consumers decreases and they buy less quantity of goods.
• Substitution effect - as consumers purchase substitutes the quantity demanded of the good falls.
• Law of diminishing the marginal utility - the benefit of consuming more of a good falls with each increased unit, so the price consumers are willing and able to pay also falls with increased consumption.