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  • Law of Demand

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    Ragh Krishh
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    The law of demand states that as the price of a good increases, the quantity demanded decreases, and vice versa. It assumes all other factors remain equal, such as consumer preferences, prices of related goods, and incomes. The law is explained by the behavior of marginal and infra-marginal consumers. When price decreases, consumers can purchase more units of the good or substitute it for another good, creating a substitution effect. It also creates an income effect as consumers can spend less while purchasing the same quantity.

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    The law of demand states that as the price of a good increases, the quantity demanded decreases, and vice versa. It assumes all other factors remain equal, such as consumer preferences, prices of related goods, and incomes. The law is explained by the behavior of marginal and infra-marginal consumers. When price decreases, consumers can purchase more units of the good or substitute it for another good, creating a substitution effect. It also creates an income effect as consumers can spend less while purchasing the same quantity.

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    Download as PPT, PDF, TXT or read online from Scribd
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    146 views8 pages

    Law of Demand

    Uploaded by

    Ragh Krishh
    The law of demand states that as the price of a good increases, the quantity demanded decreases, and vice versa. It assumes all other factors remain equal, such as consumer preferences, prices of related goods, and incomes. The law is explained by the behavior of marginal and infra-marginal consumers. When price decreases, consumers can purchase more units of the good or substitute it for another good, creating a substitution effect. It also creates an income effect as consumers can spend less while purchasing the same quantity.

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    of 8

    LAW OF DEMAND

    The

    law states the relationship between the quantity demanded and price.
    If

    the price of a commodity falls, the quantity demanded goes up and vice-versa there is an inverse relationship between the price of the commodity and the quantity demanded. In economics, this relationship is called as the LAW OF DEMAND.

    STATEMENT OF THE LAW

    Prof. Samelson writes, Law of demand states that people will buy more at lower prices and buy less at higher prices, other things remaining the same.

    ASSUMPTIONS OF THE LAW

    There should be perfect competition in the market.

    There should be no change in the income of the consumers There should be no change in the tastes and preferences of the consumers. Price of the related commodities should remain unchanged. The commodity should be a normal one. The size of the population should not change.

    EXPLANATION OF THE LAW

    CHARACTERISTICS OF LAW OF DEMAND

    The law states that demand varies inversely with price, not necessarily proportionately. Price is an independent variable while the quantity demanded is a dependent variable. The law of demand depends upon certain conditions such as constancy of tastes and preferences, incomes of the individuals, prices of substitutes, etc. If these change, demad also cahnges.

    BEHAVIOR OF BUYERS

    The buyers are classified into marginal buyers and intra-marginal buyers. Intra-marginal buyers are those who increase or decrease their consumption of a good but do not start or stop their consumption when faced with price variations. The behaviour of marginal buyers can be explained in terms of income and substitution effects.

    INCOME EFFECT

    The fall in the price of a commodity is equivalent to an increase in income of consumer, because he spends less while buying the same quantity of the commodity as before. If the consumer does not want to buy more units of the same quantity when price falls, he may use the surplus money to buy some superior commodity. Thus income effect of a change in price is negative for superior goods and positive for inferior goods.

    SUBSTITUTION EFFECT

    When the price of commodity falls, the consumers can buy more units of the same commodity or they can substitute that commodity for some other commodity. A change in price gives rise to both substitution effect and income effect.

    EXCEPTIONS TO THE LAW OF DEMAND


    The demand curve generally slopes left to right downwards. But sometimes, it may rise from left to right upwards. For eg; When a shortage is feared, people become panicky and buy more even though the price is raising.

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