Demand curve slopes downwards due to following reasons:
(i) Law of Diminishing Marginal Utility: According to this law, as the consumption of commodity increases, the utility from each successive unit goes on diminishing to a consumer. For example, a hungry person gets maximum satisfaction from the first chapatti, lesser satisfaction from the second chapatti and still less from the third chapatti and so on. If he gets more satisfaction, he will be ready to pay more and if he gets less satisfaction, he will be ready to pay less price for it. It means he will be willing to buy more quantities of a commodity at a lower price and less of it at a higher price. The law of demand also provides the same information which will lead to downward slope of a demand curve.
(ii) Income Effect: Income effect refers to change in quantity demanded when real income of the buyer changes as a result of change in price of a commodity. Change in the price of a commodity causes a change in real income of the consumer. With a fall in price, real income increases. Accordingly demand for the commodity expands. For example, you buy mangoes from the market. The price of mangoes is ₹ 40 per kg. and you buy 2 kgs of mangoes at this price. If the price of mangoes falls from ₹ 40 per kg. to ₹ 20 per kg., your real income or purchasing power is doubled and you can now buy double quantities i.e. 4 kg. of mangoes with the same money. Thus a buyer can buy more quantity of a commodity when its price falls and-less when its price rises leading to the downward slop of the demand curve.
(iii) Substitution Effect: Substituting a cheaper commodity for the relatively expensive commodity is called substitution effect. Alternatively it refers to the substitution of one commodity in place of the other commodity, when it becomes relatively cheaper. For example if the price of Coke falls, it becomes relatively cheaper than its substitute i.e. Pepsi. People start buying Coke in Coke (Alternatively Pepsi is substituted by Coke), leading to more demand for Coke when its price falls. On the other hand, demand for the commodity will fall when its price rises. It will lead to a downward slope of the demand curve.
