Why is the demand curve typically downward sloping in microeconomics?

• A. Because as the price of a good decreases, consumers are willing and able to purchase more of it due to the substitution and income effects.
• B. Because higher prices always lead to higher demand for all goods.
• C. Because producers lower prices when demand increases.
• D. Because the supply curve is also downward sloping.

Answer: (A)

Verified step by step guidance

1. Step 1: Understand the concept of the demand curve, which shows the relationship between the price of a good and the quantity demanded by consumers.
2. Step 2: Recognize that the demand curve is typically downward sloping because as the price of a good decreases, consumers tend to buy more of it.
3. Step 3: Learn about the substitution effect, which means that when the price of a good falls, it becomes relatively cheaper compared to other goods, so consumers substitute it for more expensive alternatives.
4. Step 4: Understand the income effect, which means that a lower price increases consumers' real purchasing power, allowing them to buy more of the good even if their nominal income stays the same.
5. Step 5: Combine these effects to see why a decrease in price leads to an increase in quantity demanded, resulting in the typical downward slope of the demand curve.