ECON 100 Slope of the Demand Curve

St. Charles Community College
ECON 100 Survey Economics
Class Handout

Why Does The Product Demand Curve Have A Negative Slope?
The answer to the question is developed along the following path:

  • We start with the concept of scarcity.
  • With a foundation of scarcity we investigate the concept of a budget constraint line.
  • Then we introduce the concept of diminishing marginal utility.
  • We end up with a function with a negative slope.  

Scarcity:  
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.

Budget Constraints: 
The budget constraint model is a simple one, but it demonstrates a point that we need to make. We make the following assumptions:

  • We have a limited budget because our wants normally exceed our income.
  • We choose between two commodities.  While it is rare in the real word for us to be able to choose between only two commodities, such simplicity will serve our purpose.
  • If the price of one commodity falls, we are likely to choose to purchase more of the commodity with the cheaper price.  For example, picture yourself in a grocery store in front of the soup shelf.  You see that the store is having a “two for one sale”.  It would be natural for you to take advantage of such a sale and buy more soup than you had originally intended.

 

 

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:

Total Utility
Marginal Utility

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:

  • With the concept of the budget constraint model we see that we can afford to purchase more of a good if the price drops.
  • With the concept of diminishing marginal utility it becomes apparent that if utility diminishes on the part of consumers, suppliers must drop their prices to increase consumption.

When combined, all of these concepts and principles explain why the product and the market demand curves have a negative slope.