Question

1. Explain the following:

1. Why do demand curves slope downward? Give two reasons (10)

2. Why do supply curves slope upward? (5)

3. How is opportunity cost significant to either or both a and b?

Answer 1

Demand curves slope downward because there are number of factors that affect demand of a product .

1) law of diminishing marginal utility - as per diminishing marginal utility law whenever consumption of goods increases ,satisfaction from those goods is decreases.means there marginal utility from those goods is decreases hence due to this slope comes downward.

2) due to income effect- whenever price of goods go downward then income of people is increases because now they can purchase more good in same price hence due to this quantity demand is increases and this leads to demand curve slope downward.

Supply curve slope is upward because there are number of factors that affect supply of goods-

Law of diminishing returns- as per this law when firm uses more variable input then marginal returns from each extra unit of input will diminish.

Marginal returns will fall because opportunity to divide labour is cease talking and due to this each worker contributes less hence total output rises but decreasing rate.

Opportunity cost is significant for both demand and supply .opportnity cost included explicit and implicit both cost.whenever we talking about demand then opportunity cost is used for purchasing cheaper goods.when prices go down consumer try to purchase more goods.hence opportunity cost is relevant for demand.it also relevent for supply.because law of diminishing return explain importance of opportunity cost.