The demand curve for a typical good has anA) ?negative slope, because consumer income fall as the price of the good risesB) ?negative slope, because consumers switch to other goods as the price risesC) ?negative so because the good has less snob appeal as its price fallsD) ?inverse slope, because the price goes up the quantity has more profitability
The Correct Answer and Explanation is :
The correct answer is B) negative slope, because consumers switch to other goods as the price rises.
Explanation:
In economics, the demand curve typically has a negative slope, meaning that as the price of a good increases, the quantity demanded tends to decrease. This inverse relationship between price and quantity demanded is a fundamental concept known as the law of demand. This negative slope reflects the behavior of consumers when faced with changes in prices.
There are several reasons why demand decreases as price increases:
- Substitution Effect: When the price of a good rises, consumers often switch to alternative goods that are now relatively cheaper. This is known as the substitution effect. For example, if the price of coffee increases, consumers may opt for tea or other beverages, leading to a decrease in the quantity demanded of coffee.
- Income Effect: As the price of a good increases, consumers’ purchasing power effectively decreases, meaning they may no longer afford as much of the good. For example, if the price of a particular brand of shoes increases, people may buy fewer pairs of shoes, especially if they are unable to adjust their budget.
Answer choice A is incorrect because the demand curve does not directly relate to consumer income in terms of a price increase; it focuses on the price of the good itself.
Answer choice C is not accurate because the concept of “snob appeal” relates more to the supply side, where certain goods are desirable when they are scarce or expensive, but this does not directly impact the general behavior reflected in the demand curve for most goods.
Answer choice D is also incorrect. While profitability for suppliers might be higher at higher prices, the demand curve itself reflects consumer behavior, not supplier profits. Profitability can affect supply decisions, but it doesn’t change the fundamental negative relationship between price and quantity demanded.
In summary, the negative slope of the demand curve reflects the basic idea that higher prices typically reduce the quantity demanded due to consumers switching to substitutes or reducing their overall consumption of the good.