The market demand curve is:
A) negatively sloped.
B) upward sloping.
C) always vertical
D) always horizontal.
The correct answer and explanation is:
Correct Answer: A) negatively sloped.
Explanation (300 words):
The market demand curve is negatively sloped, meaning it slopes downward from left to right. This reflects the law of demand, a fundamental principle in economics that states: as the price of a good or service decreases, the quantity demanded increases, and vice versa, ceteris paribus (all other things being equal).
This negative or downward slope represents the inverse relationship between price and quantity demanded. At higher prices, fewer consumers are willing or able to purchase the good. As the price falls, more consumers find the product affordable or valuable, so the total quantity demanded rises.
There are several reasons why the market demand curve has this shape:
- Substitution Effect: When the price of a good falls, it becomes more attractive compared to other goods. Consumers may substitute the now cheaper good for more expensive alternatives, increasing its demand.
- Income Effect: A lower price increases the real purchasing power of consumers. With the same amount of money, they can buy more of the product, which boosts demand.
- Diminishing Marginal Utility: Each additional unit of a good provides less additional satisfaction than the previous one. To encourage consumers to buy more, the price must drop.
Other options are incorrect:
- B) Upward sloping is incorrect** because that would imply consumers buy more as prices rise, which contradicts observed behavior.
- C) Always vertical would mean quantity demanded doesn’t change with price, which is extremely rare and unrealistic.
- D) Always horizontal suggests the price stays constant no matter the quantity, which applies only to perfectly competitive markets under very specific conditions.
In summary, the downward (negatively) sloped market demand curve illustrates how consumers respond to changing prices, making option A the correct choice.