Explain why normal demand curves slope downwards from left to right, while abnormal ones do not.

Normal demand curves

• The income effect causes demand for a product to fall when price rises, because it becomes less affordable(1).
• The substitution effect causes consumers to switch to cheaper substitutes as price rises (1).
• The Law of Diminishing Marginal Utility states that as more of a good is consumed, the marginal utility gained from the consumption of an additional unit decreases (1).
• A consumer will only demand additional units if price is lowered (1) this is because the lower price reflects the lower satisfaction gained from consuming one more unit of the product (1).

Abnormal demand curves

• As the price of an essential/Giffen good increases, low income consumers may cancel consumption of other goods and use their income to buy more of these essential goods (1). For example, if the price of potatoes goes up, demand for potatoes may rise as consumers stop buying other products (for example, meat), as their income does not allow them to buy both (1).
• As the price of a luxury/Veblen good increases, some consumers will demand more as they wish to demonstrate their wealth (1).
• Higher prices may indicate better quality, so some consumers may buy more of the good (1).
• Rising prices of a product encourages consumers to buy more of it in anticipation, for example, motorists buying petrol as they think the price may rise in the Budget (1).
• Rising prices of a product encourages consumers to buy more of it in speculation, for example, consumers may purchase a house as an investment as they expect house prices to keep rising (1).

(From the National Qualifications Specimen only)