question_answer

Show that demand of a commodity is inversely related to its price. Explain with the help of utility analysis.

Or

Why an indifference curve is negatively sloped? Explain.

Answer:

Demand refers to the quantity which a consumer is willing to purchase through the given income of the consumer during a specific period of time. The demand of a commodity is inversely related to its price. If the price of commodity increases then the demand of the commodity decreases. On the contrary, if the price of commodity decreases then the demand of the commodity increases.

This happens because of law of marginal utility. As more and more units of a good are consumed then MU driven from that commodity tends to diminesh. As a result, demand of a commodity is inversely related to its price.

Or

Indifference curve refers to the curve showing consumption combinations of two commodities which yield the same level of satisfaction to the consumer.

An indifference curve is negatively sloped because:

If the quantity of one good is decreased then the quantity of other good will increase. It means that with the additional consumption of one commodity, a consumer has to sacrifice less and less units of other commodity. This slope of indifference curve is also called Marginal Rate of Substitution of Good X and Good Y, denoted as MRS\[xy=\frac{\Delta Y}{\Delta X}\].