Demand curves have a negative slope because Select one: a. firms tend to produce

Question

Demand curves have a negative slope because Select one: a. firms tend to produce less of a good that is more costly to produce. Incorrect b. the substitution effect always leads consumers to substitute higher quality goods for lower quality goods. c. the substitution effect always causes consumers to try to substitute away from the consumption of a commodity when the commodity's price rises. d. an increase in price reduces real income and the income effect always causes consumers to reduce consumption of a commodity when income falls.

Explanation / Answer

Demand curves have a negative slope because
d) an increase in price reduces real income and the income effect always causes consumers to reduce consumption of a commodity when income falls.

Reason :- A fall in the price of a good increases the real income of the consumer. He is able to buy more of the good under question, or buy more of other goods. Similarly, an increase in the price of a good reduces his real income In this case; the income effect leads to a reduction in the demand of the good. This factor also contributes to the downward slope of demand curve.

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