Q:

What is an upward sloping demand curve?

A:

Quick Answer

An upward sloping demand curve indicates that demand for a good or service increases as price increases. Upward sloping demand curves are the result of conspicuous consumption and products known as “Giffen goods.”

Continue Reading

Full Answer

Conspicuous consumption is an economics phenomenon whereby consumers purchase luxury goods because of the status associated with them. Luxury automobiles, artwork and high-end designer apparel are examples of items susceptible to conspicuous consumption. The demand for these goods rise with price increases because of a belief that high prices confer substantial taste or wealth.

Demand also rises with price increases for items known as “Giffen goods.” These goods yield an upward sloping demand curve because demand fluctuations relative to price result from the sum of the substitution effect and the income effect.

When the price of a good or service increases, the consumer’s purchasing power decreases. Conversely, when the price of a good or service decreases, the consumer’s purchasing power increases, which is akin to an increase in income.

If a good or service is categorized as “normal," then the income effect states that demand increases when the price of the good decreases and vice versa. However, if the good is regarded as “inferior,” the income effect states that demand increases when the price rises.

Examples of inferior goods include tickets for public transportation. When income rises, consumers substitute personal vehicles for public transportation.

Learn more about Economics

Related Questions

Explore