- What is Law Of Demand?
- Demand Schedule
- Demand curve
- Frequently Asked Questions (FAQs)
What is Law Of Demand?
Law of demand states that there is inverse relationship between price and quantity demanded for a commodity, remaining other factors constant. The law of demand states the relationship between price of a commodity and its the quantity demanded. According to this law, the demand for a commodity increases with a fall in price and decreases with a rise in its price, other things remaining the same. Thus, this inverse price-demand relation is known as the law of demand.
According to Marshall, “Other things remaining the same, the amount demanded increases with a fall in price and diminishes with a rise in price.”
If things other than price of the commodity change, then the inverse price- demand relationship may not hold good.
The law of demand is based on the following assumptions:
No change in income of the consumer.
If there’s no change in the consumer’s income, it means their financial situation remains the same—no increase or decrease in the money coming in.
No change in price of related goods.
If the price of related goods stays the same, it means there’s been no adjustment in the cost of similar products.
No change in taste and fashion of the consumer.
If a consumer’s taste and fashion preferences don’t change, it means they’re sticking with the same styles and preferences without any shift in their choices.
No change in habit of the consumer.
If a consumer’s habits remain unchanged, it indicates that their behavior and routines haven’t shifted or evolved over a certain period.
No change in climate and season.
If there’s no change in climate and season, it means the weather and time of year have remained constant without any noticeable differences.
No expectation of future change in price.
If there’s no expectation of future change in price, it means people anticipate that the cost of something will remain the same, without any upward or downward shifts in the foreseeable future.
No change in size and composition of population.
If there’s no change in the size and composition of the population, it means the number of people and their demographic makeup, such as age and gender, has remained constant without any notable alterations.
On the basis of these assumptions, the law of demand can be explained with the help of demand schedule and demand curve.
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A demand schedule is a table that shows various quantities of a commodity demanded at different prices in a given period of time. A hypothetical demand schedule is shown in table.
|Price (in Rs.)
|Quantity Demanded (in Units)
The table shows an inverse relationship between price and quantity demanded for a commodity. When the price is Rs. 5 per unit, the consumer purchases 10 units of the commodity. When the price decreases to Rs. 4 per unit, he purchases 20 units of the commodity. Similarly, when the price decreases to Rs. 2 per unit, the quantity demanded by him increases to 50 units.
Demand curve is simply a graphical representation of demand schedule, expressing the relationship between price and quantity demanded for a commodity. It is shown in the given figure 1.1:
In the figure 1.1, X-axis represents the quantity of a commodity and Y-axis represents the price of the commodity. By plotting 10 units of the commodity at price Rs. 5, we get point A in the figure. Likewise, by plotting 20 units of the commodity at price Rs. 4, we get point B.
Similarly, point C, D and E are obtained. By joining these various points A, B, C, D, and E, we get a curve DD, which is known as demand curve. It slopes downward to the right i.e. negatively sloped. The negative slope of the demand curve shows the inverse relationship between the price of the commodity and its quantity demanded.
Frequently Asked Questions (FAQs)
Why does the Law of Demand exist?
It’s often attributed to the basic economic behavior of consumers: as prices drop, more people can afford a product, leading to an increase in demand, and conversely, as prices rise, demand tends to decrease
What factors can influence demand other than price?
Factors include consumer income, preferences, expectations, and the prices of related goods (substitutes and complements).
How is demand different from quantity demanded?
Demand refers to the various quantities of a good that consumers are willing and able to buy at different prices, while quantity demanded specifically refers to the amount bought at a particular price.