Question

What type of relationship exists between the price of a commodity and its demand?

Hint:

Law of Demand: \[ \text{Price} \uparrow \Rightarrow \text{Demand} \downarrow \] Hence, demand curves are always downward sloping (except rare cases like Giffen goods).

Answer 1

Concept: The relationship between the price of a commodity and its demand is explained by the Law of Demand. This fundamental principle of microeconomics states that:
Other things remaining constant (ceteris paribus), when the price of a commodity rises, its demand falls, and when the price falls, demand rises.
Nature of Relationship: This indicates an inverse (negative) relationship between price and quantity demanded. Mathematically: \[ P \uparrow \Rightarrow Q_d \downarrow \quad \text{and} \quad P \downarrow \Rightarrow Q_d \uparrow \] Reason for Inverse Relationship:

• Law of diminishing marginal utility – Consumers derive less satisfaction from additional units.
• Income effect – Higher prices reduce real purchasing power.
• Substitution effect – Consumers shift to cheaper alternatives when price rises.

Graphical Representation: Due to this inverse relationship, the demand curve slopes downward from left to right.
Conclusion: Thus, the relationship between the price of a commodity and its demand is inverse.