St. Charles Community College
ECON 100 Survey Economics
Why Does The Product Demand Curve Have A Negative Slope?
The answer to the question is developed along the following path:
The concept of scarcity is based on the precept that, as human beings, our wants and desires always exceed our resources to pay for those wants and desires. Therefore, we have to make choices when we purchase the items that satisfy our needs.
The budget constraint model is a simple one, but it demonstrates a point that we need to make. We make the following assumptions:
Diminishing Marginal Utility
When we decide to make purchases of goods and services, we do so because such purchases give us utility. Another way of saying the same thing is that those purchases give us satisfaction. What may bring satisfaction or utility to one consumer may not offer the same utility or satisfaction to another consumer. And, what may give us utility one day may not give us utility the next day.
Generally, as we consume more and more of a good, our total utility increases with each additional consumption event. However, it is common that as we consume more and more of a given good or service, the utility of that good or service will progressively decrease.
As an example, consider the situation of being invited to a different friend’s house for a barbeque on each of the days of a Labor Day weekend. And let’s assume that you love barbequed chicken. On Saturday you “pig out” on the barbequed chicken. On Sunday you eat more than your share, but you find that you don’t want as much as you had on Saturday. On Monday you find that you want to eat less barbequed chicken than you did on Sunday, even though it is one of your favorite foods. On Tuesday it would suit you
just fine if you didn’t have any barbequed chicken at all for a while. With each additional serving of chicken this weekend, your total utility kept increasing, but at a decreasing rate. That is what is meant by diminishing marginal utility.
If we take this concept and graph it, we come up with curves that look like:
Note the shape of the bottom curve. It has a negative slope, it has quantities along the horizontal axis, and it looks kike a demand curve. In fact, it is a demand curve, and the shape of the curve incorporates all of the concepts that we have mentioned above.
Reviewing those concepts as they relate to the demand curve, we see that:
When combined, all of these concepts and principles explain why the product and the market demand curves have a negative slope.