According to traditional approach, the cause of the slopping downward trend of demand curve is the application of the law of diminishing marginal utility. Professor Marshall expresses this view. J.R. Hicks, Allen and other modern economist argue that it is due to the income effect and substitution effect. Following are the main causes, which are responsible for this relationship and downward slopping of demand curve.
1. Change in the Number of Consumer:If the price of a particular commodity falls, some new consumers enter in the market and start purchasing the commodity. The old consumers also start consuming more of the commodity. If the price increases new consumers withdraw and old consumers start consuming lesser commodity. The result of the consumer’s behaviour is the operation of law of demand and the downward slop of demand curve.
2. Law of Diminishing Marginal Utility: We know that the satisfaction derived from the consumption of successive units goes on falling, because earlier units have partly satisfied our wants. In this way, every additional unit of the commodity will give us lesser utility (satisfaction). So a consumer wants to pay lesser price for additional unit and help he only purchases additional unit when the price falls. Therefore demand come slopes down wards.
3. Multiple Use of Goods:If the price of the goods of several was falls, consumers use there goods for less important purpose and quantity demand increases. For example, when the price of electricity falls, consumers use electricity for different purpose.4. Substitution effect: When the price of any substitute good falls, the consumer gives up the dearer good and buys additional units of the cheaper good. In the same way, when the price falls, the consumers, who are consuming other goods, are also attracted to the cheaper goods and it makes the demand curve downward slopping.