Why Are Downward-Sloping Demand Curves Unrealistic?

A Critical Review of Factors Influencing Demand in More Realistic Scenario-I

Abstract

The study focuses on the demand-price relationship in the commodity market and the scope of the demand curve when the assumptions of ceteris paribus and rationality are relaxed. The study gives some useful insights to the policy-makers to consider while framing any policy related to aggregate demand, output, or inflation. The study is divided into five sections. The first section presents views of different schools of economists. The second section presents a review of the literature on the existing works by distinguished authors. It is covered under three themes: arguments in favor of the downward-sloping demand curve; factors other than price that influence quantity demanded; and circumstances where the demand curve is not downward-sloping. Section three covers the research methodology undertaken to analyze the emergence of the concept of demand and the factors directing it. Coupled with it, are the tentative explanations highlighting the main objectives; access to data and resources helpful for the research; the applied methods for concrete results that includes analysis of WPI showing a change in weights of commodities due to subsequent change in price level, an analysis of a relatively more flexible market i.e. the stock market of the country (NSE) discussing causes for the change in quantity demanded of equity shares, and analysis of a survey conducted at a local area to find out how demand is aspiration-driven. The last section puts forth the analysis based on both primary and secondary data. The study concludes that while the role of price, income, and aspirations have important roles in shaping our demand schedule, the understanding that the price–demand relationship is inverse, is a simplistic one.