The income and substitution effects account for the downward sloping demand curve.
What is demand curve ?
- A demand curve is a graphical form of the relationship between the price of a good or service and the quantity demanded over a period of time.
- In a typical representation, price is displayed on the left vertical axis and quantity demanded is displayed on the horizontal axis.
- The three basic properties are position, tilt and translation.
- Position is basically where the curve is located on this chart.
- For example, if a curve is placed on the far right of this graph, it means that demand for that product is high at a particular price.
- Changes in factors such as median income and preferences can cause the entire demand curve to shift left or right.
- This increases or decreases the quantity requested at a given price. Ceteris paribus assumption.
- The demand curve relates price and quantity demanded, assuming other factors remain unchanged.
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