• Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

With the aid of at least one diagram and examples, explain why the demand curve for a normal good (define this term) is downward sloping.

Extracts from this document...

Introduction

´╗┐With the aid of at least one diagram and examples, explain why the demand curve for a normal good (define this term) is downward sloping. A demand curve shows the relationship between the quantities of a good consumers (or a consumer) are willing and able to buy during a particular time period, and their respective prices, ceterius paribus (all other things being equal). A normal good is a good for which the demand varies positively with income; this means that as income increases, demand for the good (Q1 to Q2) increases at every price level e.g. P1; a rightward shift of the demand curve of the commodity (D1 to D2). ...read more.

Middle

If you buy a third (Q3), you will get even less benefit than from the second (P3), and so on with each additional chocolate bar. The extra benefit that you get from each additional unit of something you buy is the marginal utility (marginal meaning extra or additional). Since each successive unit of chocolate you consume (Q1 to Q6) produces less and less utility (from P5 to P0), you will be willing to buy each extra unit only if it has a lower price. When the price of a normal good decreases relative to that of substitutes, a buyer will substitute the now cheaper commodity for those whose prices have not changed. ...read more.

Conclusion

With this increase in real income, the people will be likely to buy more of the product, hence there will be an increase in the quantity demanded (Q1 to Q2). Conversely, an increase in the price of the good reduces consumer? purchasing power. In conclusion, according to the law of demand there is a negative causal relationship between price of a normal good and its quantity demanded over a particular time period, ceterius paribus: as a price of a normal good increases, quantity demanded falls; as the price falls, quantity demanded increases, ceterius paribus. There is an inverse relationship between price and quantity. The higher the price of a normal good, the less of it you are able to buy; as the price falls, the good becomes more affordable, and you are likely to want and be able to buy more of it. ...read more.

The above preview is unformatted text

This student written piece of work is one of many that can be found in our International Baccalaureate Economics section.

Found what you're looking for?

  • Start learning 29% faster today
  • 150,000+ documents available
  • Just £6.99 a month

Not the one? Search for your essay title...
  • Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

See related essaysSee related essays

Related International Baccalaureate Economics essays

  1. LDC Essay Economics Aid

    . Figure 2 shows hat both in developing and developed countries inequality exists. From the graph it could be understood that inequality exists around the world and is not concentrated on the poorer nations.

  2. Economics LDC Types of Aid

    A question of the actual efficiency of aid is often questioned. Often it is distorted into some corrupt political regimes, especially in supplying arms, and exalted projects rather than to the ordinary developments, more likely to capitulate better results. Most aid is also tied, meaning that aid is only given

  1. Markets and Price Determination

    Technological change (e.g. robots) A more efficient method of production is used. Faulty technology causes inefficiency and raises costs. Government policy (e.g. subsidy or indirect tax) Payment of a subsidy by the government cuts costs so they supply more. Indirect tax (e.g.

  2. With the aid of at least one diagram, explain three factors that may cause ...

    Sometimes, the demand for a commodity might be influenced by prices changes of other commodities. There are two types of related goods. These are substitutes and complements. Two commodities are substitutes if they satisfy a similar need.

  • Over 160,000 pieces
    of student written work
  • Annotated by
    experienced teachers
  • Ideas and feedback to
    improve your own work