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What Is the Law of Demand?

Understanding the law of demand, demand vs. quantity demanded, factors affecting demand, law of supply.

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What Is the Law of Demand in Economics, and How Does It Work?

Adam Hayes, Ph.D., CFA, is a financial writer with 15+ years Wall Street experience as a derivatives trader. Besides his extensive derivative trading expertise, Adam is an expert in economics and behavioral finance. Adam received his master's in economics from The New School for Social Research and his Ph.D. from the University of Wisconsin-Madison in sociology. He is a CFA charterholder as well as holding FINRA Series 7, 55 & 63 licenses. He currently researches and teaches economic sociology and the social studies of finance at the Hebrew University in Jerusalem.

law of demand assignment

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law of demand assignment

The law of demand is one of the most fundamental concepts in economics. It works with the law of supply to explain how market economies allocate resources and determine the prices of goods and services that we observe in everyday transactions.

The law of demand states that the quantity purchased varies inversely with price. In other words, the higher the price, the lower the quantity demanded. This occurs because of diminishing marginal utility . That is, consumers use the first units of an economic good they purchase to serve their most urgent needs first, then they use each additional unit of the good to serve successively lower-valued ends.

Key Takeaways

  • The law of demand is a fundamental principle of economics that states that at a higher price, consumers will demand a lower quantity of a good.
  • Demand is derived from the law of diminishing marginal utility, the fact that consumers use economic goods to satisfy their most urgent needs first.
  • A market demand curve expresses the sum of quantity demanded at each price across all consumers in the market.
  • Changes in price can be reflected in movement along a demand curve, but by themselves, they don't increase or decrease demand.
  • The shape and magnitude of demand shifts in response to changes in consumer preferences, incomes, or related economic goods, not usually to changes in price.

Economics involves the study of how people use limited means to satisfy unlimited wants. The law of demand focuses on those unlimited wants. Naturally, people prioritize more urgent wants and needs over less urgent ones in their economic behavior, and this carries over into how people choose among the limited means available to them.

For any economic good, the first unit of that good that a consumer gets their hands on will tend to be used to satisfy the most urgent need the consumer has that that good can satisfy.

For example, consider a castaway on a desert island who obtains a six-pack of bottled fresh water that washes up onshore. The first bottle will be used to satisfy the castaway’s most urgently felt need, which is most likely drinking water to avoid dying of thirst.

The second bottle might be used for bathing to stave off disease, an urgent but less immediate need. The third bottle could be used for a less urgent need, such as boiling some fish to have a hot meal, and on down to the last bottle, which the castaway uses for a relatively low priority, such as watering a small potted plant to feel less alone on the island.

Because each additional bottle of water is used for a successively less highly valued want or need by our castaway, we can say that the castaway values each additional bottle less than the one before.

The more units of a good that consumers buy, the less they are willing to pay in terms of price.

Similarly, when consumers purchase goods on the market, each additional unit of any given good or service that they buy will be put to a less valued use than the one before, so we can say that they value each additional unit less and less. Because they value each additional unit of the good less , they aren't willing to pay as much for it.

By adding up all the units of a good that consumers are willing to buy at any given price, we can describe a market demand curve , which is always sloping downward, like the one shown in the chart below. Each point on the curve (A, B, C) reflects the quantity demanded (Q) at a given price (P). At point A, for example, the quantity demanded is low (Q1) and the price is high (P1). At higher prices, consumers demand less of the good, and at lower prices, they demand more.

In economic thinking, it is important to understand the difference between the phenomenon of demand and the quantity demanded. In the chart above, the term “demand” refers to the light blue line plotted through A, B, and C.

It expresses the relationship between the urgency of consumer wants and the number of units of the economic good at hand. A change in demand means a shift of the position or shape of this curve; it reflects a change in the underlying pattern of consumer wants and needs vis-à-vis the means available to satisfy them.

On the other hand, the term “quantity demanded” refers to a point along the horizontal axis. Changes in the quantity demanded strictly reflect changes in the price, without implying any change in the pattern of consumer preferences.

Changes in quantity demanded just mean movement along the demand curve itself because of a change in price. These two ideas are often conflated, but this is a common error—rising (or falling) prices don't decrease (or increase) demand; they change the quantity demanded .

So what does change demand? The shape and position of the demand curve can be affected by several factors. Rising incomes tend to increase demand for normal economic goods, as people are willing to spend more. The availability of close substitute products that compete with a given economic good will tend to reduce demand for that good because they can satisfy the same kinds of consumer wants and needs.

Conversely, the availability of closely complementary goods will tend to increase demand for an economic good because the use of two goods together can be even more valuable to consumers than using them separately, like peanut butter and jelly.

Other factors such as future expectations, changes in background environmental conditions, or changes in the actual or perceived quality of a good can change the demand curve because they alter the pattern of consumer preferences for how the good can be used and how urgently it is needed.

Supply is the total amount of a specific good or service that is available to consumers at a certain price point. As the supply of a product fluctuates, so does the demand, which directly affects the price of the product.

The law of supply, then, is a microeconomic law stating that, all other factors being equal, as the price of a good or service rises, the quantity that suppliers offer will rise in turn (and vice versa). When demand exceeds the available supply, the price of a product typically will rise. Conversely, should the supply of an item increase while the demand remains the same, the price will go down.

What is a Simple Explanation of the Law of Demand?

The law of demand tells us that if more people want to buy something, given a limited supply, the price of that thing will be bid higher. Likewise, the higher the price of a good, the lower the quantity that will be purchased by consumers.

Why Is the Law of Demand Important?

Together with the law of supply, the law of demand helps us understand why things are priced at the level that they are, and to identify opportunities to buy what are perceived to be underpriced (or sell overpriced) products, assets, or securities . For instance, a firm may boost production in response to rising prices that have been spurred by a surge in demand.

Can the Law of Demand Be Broken?

Yes. In certain cases, an increase in demand doesn't affect prices in ways predicted by the law of demand. For instance, so-called Veblen goods are things for which demand increases as their price rises, as they are perceived as status symbols. Similarly, demand for Giffen goods (which, in contrast to Veblen goods, aren't luxury items) rises when the price goes up and falls when the price falls. Examples of Giffen goods can include bread, rice, and wheat. These tend to be common necessities and essential items with few good substitutes at the same price levels.

The law of demand posits that the price of an item and the quantity demanded have an inverse relationship. Essentially, it tells us that people will buy more of something when its price falls and vice versa.  When graphed, the law of demand appears as a line sloping downward.

This law is a fundamental principle of economics. It helps to set prices, understand why things are priced as they are, and identify items that may be over- or underpriced.

University of Southern Philippines Foundation. " Law of Demand ," Page 1.

Econlib. " Demand ."

University of Pittsburgh. " Supply and Demand ," Page 1.

University of Pittsburgh. " Supply and Demand ," Page 3.

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  • How Does Government Policy Impact Microeconomics? 6 of 39
  • Microeconomics vs. Macroeconomics: What’s the Difference? 7 of 39
  • How Do I Differentiate Between Micro and Macro Economics? 8 of 39
  • Microeconomics vs. Macroeconomics Investments 9 of 39
  • Introduction to Supply and Demand 10 of 39
  • Is Demand or Supply More Important to the Economy? 11 of 39
  • Demand: How It Works Plus Economic Determinants and the Demand Curve 12 of 39
  • What Is the Law of Demand in Economics, and How Does It Work? 13 of 39
  • Demand Curves: What Are They, Types, and Example 14 of 39
  • Supply 15 of 39
  • The Law of Supply Explained, With the Curve, Types, and Examples 16 of 39
  • Supply Curve Definition: How It Works With Example 17 of 39
  • Elasticity: What It Means in Economics, Formula, and Examples 18 of 39
  • Price Elasticity of Demand: Meaning, Types, and Factors That Impact It 19 of 39
  • Elasticity vs. Inelasticity of Demand: What's the Difference? 20 of 39
  • What Is Inelastic? Definition, Calculation, and Examples of Goods 21 of 39
  • What Affects Demand Elasticity for Goods and Services? 22 of 39
  • What Factors Influence a Change in Demand Elasticity? 23 of 39
  • Utility in Economics Explained: Types and Measurement 24 of 39
  • Utility in Microeconomics: Origins, Types, and Uses 25 of 39
  • Utility Function Definition, Example, and Calculation 26 of 39
  • Definition of Total Utility in Economics, With Example 27 of 39
  • Marginal Utilities: Definition, Types, Examples, and History 28 of 39
  • What Is the Law of Diminishing Marginal Utility? With Example 29 of 39
  • What Does the Law of Diminishing Marginal Utility Explain? 30 of 39
  • Economic Equilibrium 31 of 39
  • What Is the Income Effect? Its Meaning and Example 32 of 39
  • Indifference Curves in Economics: What Do They Explain? 33 of 39
  • Consumer Surplus Definition, Measurement, and Example 34 of 39
  • What Is Comparative Advantage? 35 of 39
  • What Are Economies of Scale? 36 of 39
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  • Market Failure: What It Is in Economics, Common Types, and Causes 39 of 39

law of demand assignment

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The Law of Demand (With Diagram)

law of demand assignment

In this article we will discuss about:- 1. Introduction to the Law of Demand 2. Assumptions of the Law of Demand 3. Exceptions.

Introduction to the Law of Demand :

The law of demand expresses a relationship between the quantity demanded and its price. It may be defined in Marshall’s words as “the amount demanded increases with a fall in price, and diminishes with a rise in price”. Thus it expresses an inverse relation between price and demand. The law refers to the direction in which quantity demanded changes with a change in price.

On the figure, it is represented by the slope of the demand curve which is normally negative throughout its length. The inverse price- demand relationship is based on other things remaining equal. This phrase points towards certain im­portant assumptions on which this law is based.

Assumptions of the Law of Demand:

These assumptions are:

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(i) There is no change in the tastes and preferences of the consumer;

(ii) The income of the consumer remains constant;

(iii) There is no change in customs;

(iv) The commodity to be used should not confer distinction on the consumer;

(v) There should not be any substitutes of the commodity;

(vi) There should not be any change in the prices of other products;

(vii) There should not be any possibility of change in the price of the product being used;

(viii) There should not be any change in the quality of the product; and

(ix) The habits of the consumers should remain unchanged. Given these conditions, the law of demand operates. If there is change even in one of these conditions, it will stop operating.

Given these assumptions, the law of demand is explained in terms of Table 3 and Figure 7.

law of demand assignment

The law of demand states that, other things being equal,

  • More of a good will be bought the lower its price
  • Less of a good will be bought the higher its price

Ceteris paribus means “other things being equal.”

What Is Demand?

Photo of a small red and white gas station and gas pump.

Demand for Goods and Services

Economists use the term demand  to refer to the amount of some good or service consumers are willing and able to purchase at each price. Demand is based on needs and wants—a consumer may be able to differentiate between a need and a want, but from an economist’s perspective, they are the same thing. Demand is also based on ability to pay. If you can’t pay for it, you have no effective demand.

What a buyer pays for a unit of the specific good or service is called the  price . The total number of units purchased at that price is called the quantity demanded . A rise in the price of a good or service almost always decreases the quantity of that good or service demanded. Conversely, a fall in price will increase the quantity demanded. When the price of a gallon of gasoline goes up, for example, people look for ways to reduce their consumption by combining several errands, commuting by carpool or mass transit, or taking weekend or vacation trips closer to home. Economists call this inverse relationship between price and quantity demanded the law of demand . The law of demand assumes that all other variables that affect demand are held constant.

An example from the market for gasoline can be shown in the form of a table or a graph. (Refer back to “Reading: Creating and Interpreting Graphs” in module 0 if you need a refresher on graphs.) A table that shows the quantity demanded at each price, such as Table 1, is called a demand schedule . Price in this case is measured in dollars per gallon of gasoline. The quantity demanded is measured in millions of gallons over some time period (for example, per day or per year) and over some geographic area (like a state or a country).

Table 1. Price and Quantity Demanded of Gasoline

A demand curve shows the relationship between price and quantity demanded on a graph like Figure 1, below, with quantity on the horizontal axis and the price per gallon on the vertical axis. Note that this is an exception to the normal rule in mathematics that the independent variable (x) goes on the horizontal axis and the dependent variable (y) goes on the vertical. Economics is different from math!

The graph shows a downward-sloping demand curve that represents the law of demand.

The demand schedule (Table 1) shows that as price rises, quantity demanded decreases, and vice versa. These points can then be graphed, and the line connecting them is the demand curve (shown by line D in the graph, above). The downward slope of the demand curve again illustrates the law of demand—the inverse relationship between prices and quantity demanded.

The demand schedule shown by Table 1 and the demand curve shown by the graph in Figure 1 are two ways of describing the same relationship between price and quantity demanded.

Demand curves will look somewhat different for each product. They may appear relatively steep or flat, or they may be straight or curved. Nearly all demand curves share the fundamental similarity that they slope down from left to right. In this way, demand curves embody the law of demand: As the price increases, the quantity demanded decreases, and conversely, as the price decreases, the quantity demanded increases.

Demand vs. Quantity Demanded

In economic terminology, demand is not the same as quantity demanded . When economists talk about demand, they mean the relationship between a range of prices and the quantities demanded at those prices, as illustrated by a demand curve or a demand schedule. When economists talk about quantity demanded, they mean only a certain point on the demand curve, or one quantity on the demand schedule. In short, demand refers to the curve and quantity demanded refers to the (specific) point on the curve.

Change in Demand vs. Change in Quantity Demanded

A change in price does not move the demand curve. It only shows a difference in the quantity demanded.

The demand curve will move left or right when there is an underlying change in demand at all prices.

Factors Affecting Demand

Introduction.

We defined demand as the amount of some product that a consumer is willing and able to purchase at each price . This suggests at least two factors, in addition to price, that affect demand. “Willingness to purchase” suggests a desire to buy, and it depends on what economists call tastes and preferences. If you neither need nor want something, you won’t be willing to buy it. “Ability to purchase” suggests that income is important. Professors are usually able to afford better housing and transportation than students, because they have more income. The prices of related goods can also affect demand. If you need a new car, for example, the price of a Honda may affect your demand for a Ford. Finally, the size or composition of the population can affect demand. The more children a family has, the greater their demand for clothing. The more driving-age children a family has, the greater their demand for car insurance and the less for diapers and baby formula.

These factors matter both for demand by an individual and demand by the market as a whole. Exactly how do these various factors affect demand, and how do we show the effects graphically? To answer those questions, we need the  ceteris paribus assumption.

The Ceteris Paribus Assumption

A  demand curve or a supply curve  (which we’ll cover later in this module) is a relationship between two, and only two, variables: quantity on the horizontal axis and price on the vertical axis. The assumption behind a demand curve or a supply curve is that no relevant economic factors, other than the product’s price, are changing. Economists call this assumption  ceteris paribus , a Latin phrase meaning “other things being equal.” Any given demand or supply curve is based on the ceteris paribus assumption that all else is held equal. (You’ll recall that economists use the  ceteris paribus assumption to simplify the focus of analysis.) Therefore, a demand curve or a supply curve is a relationship between two, and only two, variables when all other variables are held equal . If all else is not held equal, then the laws of supply and demand will not necessarily hold.

Ceteris paribus is typically applied when we look at how changes in price affect demand or supply, but  ceteris paribus can also be applied more generally. In the real world, demand and supply depend on more factors than just price. For example, a consumer’s demand depends on income, and a producer’s supply depends on the cost of producing the product. How can we analyze the effect on demand or supply if multiple factors are changing at the same time—say price rises and income falls? The answer is that we examine the changes one at a time, and assume that the other factors are held constant.

For example, we can say that an increase in the price reduces the amount consumers will buy (assuming income, and anything else that affects demand, is unchanged). Additionally, a decrease in income reduces the amount consumers can afford to buy (assuming price, and anything else that affects demand, is unchanged). This is what the  ceteris paribus assumption really means. In this particular case, after we analyze each factor separately, we can combine the results. The amount consumers buy falls for two reasons: first because of the higher price and second because of the lower income.

The Effect of Income on Demand

Let’s use income as an example of how factors other than price affect demand. Figure 1 shows the initial demand for automobiles as D 0 . At point Q, for example, if the price is $20,000 per car, the quantity of cars demanded is 18 million. D 0 also shows how the quantity of cars demanded would change as a result of a higher or lower price. For example, if the price of a car rose to $22,000, the quantity demanded would decrease to 17 million, at point R.

The graph shows demand curve D sub 0 as the original demand curve. Demand curve D sub 1 represents a shift based on increased income. Demand curve D sub 2 represents a shift based on decreased income.

The original demand curve D 0 , like every demand curve, is based on the  ceteris paribus assumption that no other economically relevant factors change. Now imagine that the economy expands in a way that raises the incomes of many people, making cars more affordable. How will this affect demand? How can we show this graphically?

Return to Figure 1. The price of cars is still $20,000, but with higher incomes, the quantity demanded has now increased to 20 million cars, shown at point S. As a result of the higher income levels, the demand curve shifts to the right to the new demand curve D 1 , indicating an increase in demand. Table 1, below, shows clearly that this increased demand would occur at every price, not just the original one.

Now, imagine that the economy slows down so that many people lose their jobs or work fewer hours, reducing their incomes. In this case, the decrease in income would lead to a lower quantity of cars demanded at every given price, and the original demand curve D 0 would shift left to D 2 . The shift from D 0 to D 2 represents such a decrease in demand: At any given price level, the quantity demanded is now lower. In this example, a price of $20,000 means 18 million cars sold along the original demand curve, but only 14.4 million sold after demand fell.

When a demand curve shifts, it does not mean that the quantity demanded by every individual buyer changes by the same amount. In this example, not everyone would have higher or lower income and not everyone would buy or not buy an additional car. Instead, a shift in a demand curve captures a pattern for the market as a whole: Increased demand means that at every given price, the quantity demanded is higher, so that the demand curve shifts to the right from D 0 to D 1 . And, decreased demand means that at every given price, the quantity demanded is lower, so that the demand curve shifts to the left from D 0 to D 2 .

We just argued that higher income causes greater demand at every price. This is true for most goods and services. For some—luxury cars, vacations in Europe, and fine jewelry—the effect of a rise in income can be especially pronounced. A product whose demand rises when income rises, and vice versa, is called a normal good . A few exceptions to this pattern do exist, however. As incomes rise, many people will buy fewer generic-brand groceries and more name-brand groceries. They are less likely to buy used cars and more likely to buy new cars. They will be less likely to rent an apartment and more likely to own a home, and so on. A product whose demand falls when income rises, and vice versa, is called an inferior good . In other words, when income increases, the demand curve shifts to the left.

Other Factors That Shift Demand Curves

Income is not the only factor that causes a shift in demand. Other things that change demand include tastes and preferences, the composition or size of the population, the prices of related goods, and even expectations. A change in any one of the underlying factors that determine what quantity people are willing to buy at a given price will cause a shift in demand. Graphically, the new demand curve lies either to the right (an increase) or to the left (a decrease) of the original demand curve. Let’s look at these factors.

Changing Tastes or Preferences

Photo of a boy with a fried chicken foot in his mouth.

From 1980 to 2012, the per-person consumption of chicken by Americans rose from 33 pounds per year to 81 pounds per year, and consumption of beef fell from 77 pounds per year to 57 pounds per year, according to the U.S. Department of Agriculture (USDA). Changes like these are largely due to shifts in taste, which change the quantity of a good demanded at every price: That is, they shift the demand curve for that good—rightward for chicken and leftward for beef.

Changes in the Composition of the Population

The proportion of elderly citizens in the United States population is rising. It rose from 9.8 percent in 1970 to 12.6 percent in 2000 and will be a projected (by the U.S. Census Bureau) 20 percent of the population by 2030. A society with relatively more children, like the United States in the 1960s, will have greater demand for goods and services like tricycles and day care facilities. A society with relatively more elderly persons, as the United States is projected to have by 2030, has a higher demand for nursing homes and hearing aids. Similarly, changes in the size of the population can affect the demand for housing and many other goods. Each of these changes in demand will be shown as a shift in the demand curve.

Changes in the Prices of Related Goods

The demand for a product can also be affected by changes in the prices of related goods such as substitutes or complements. A  substitute   is a good or service that can be used in place of another good or service. As electronic books, like this one, become more available, you would expect to see a decrease in demand for traditional printed books. A lower price for a substitute decreases demand for the other product. For example, in recent years as the price of tablet computers has fallen, the quantity demanded has increased (because of the law of demand). Since people are purchasing tablets, there has been a decrease in demand for laptops, which can be shown graphically as a leftward shift in the demand curve for laptops. A higher price for a substitute good has the reverse effect.

Other goods are complements for each other, meaning that the goods are often used together, because consumption of one good tends to enhance consumption of the other. Examples include breakfast cereal and milk; notebooks and pens or pencils, golf balls and golf clubs; gasoline and sport utility vehicles; and the five-way combination of bacon, lettuce, tomato, mayonnaise, and bread. If the price of golf clubs rises, since the quantity of golf clubs demanded falls (because of the law of demand), demand for a complement good like golf balls decreases, too. Similarly, a higher price for skis would shift the demand curve for a complement good like ski resort trips to the left, while a lower price for a complement has the reverse effect.

Changes in Expectations About Future Prices or Other Factors That Affect Demand

While it is clear that the price of a good affects the quantity demanded, it is also true that expectations about the future price (or expectations about tastes and preferences, income, and so on) can affect demand. For example, if people hear that a hurricane is coming, they may rush to the store to buy flashlight batteries and bottled water. If people learn that the price of a good like coffee is likely to rise in the future, they may head for the store to stock up on coffee now. These changes in demand are shown as shifts in the curve. Therefore, a  shift in demand happens when a change in some economic factor (other than the current price) causes a different quantity to be demanded at every price.

Worked Example: Shift in Demand

Photo of a dog with the side of a whole pizza in its teeth.

Shift in Demand Due to Income Increase

A shift in demand means that at any price (and at every price), the quantity demanded will be different than it was before. Following is a graphic illustration of a shift in demand due to an income increase.

Step 1 . Draw the graph of a demand curve for a normal good like pizza. Pick a price (like P 0 ). Identify the corresponding Q 0 . An example is shown in Figure 1.

The graph represents the directions for step 1. A demand curve shows how much consumers would be willing to buy at any given price.

Step 2 . Suppose income increases. As a result of the change, are consumers going to buy more or less pizza? The answer is more. Draw a dotted horizontal line from the chosen price, through the original quantity demanded, to the new point with the new Q 1 . Draw a dotted vertical line down to the horizontal axis and label the new Q 1 . An example is provided in Figure 2.

The graph represents the directions for step 2. With an increased income, consumers will wish to buy a higher quantity (Q sub 1) than they bought with a lower income.

Step 3 . Now, shift the curve through the new point. You will see that an increase in income causes an upward (or rightward) shift in the demand curve, so that at any price, the quantities demanded will be higher, as shown in Figure 3.

The graph represents the directions for step 3. An increased income results in an increase in demand, which is shown by a rightward shift in the demand curve.

Summary of Factors That Change Demand

Three paper cylinders. The top of each has been diagonally cut and shifted slightly to the left.

Six factors that can shift demand curves are summarized in Figure 1, below. The direction of the arrows indicates whether the demand curve shifts represent an increase in demand or a decrease in demand. Notice that a change in the price of the good or service itself is not listed among the factors that can shift a demand curve. A change in the price of a good or service causes a movement along a specific demand curve, and it typically leads to some change in the quantity demanded, but it does not shift the demand curve.

The graph on the left lists events that could lead to increased demand. These include taste shift to greater popularity, population likely to buy rises, income rises (for a normal good), price of substitution rises, price of complements falls, and future expectations encourage buying. The graph on the right lists events that could lead to decreased demand. These include a taste shift to lesser popularity, population likely to buy drops, income drops (for a normal good), the price of substitutes falls, the price of complements rises, future expectations discourage buying.

Try It: Demand for Food Trucks

Play the simulation below multiple times to see how different choices lead to different outcomes. All simulations allow unlimited attempts so that you can gain experience applying the concepts.

Check Your Understanding

Answer the question(s) below to see how well you understand the topics covered above. This short quiz does not count toward your grade in the class, and you can retake it an unlimited number of times.

Use this quiz to check your understanding and decide whether to (1) study the previous section further or (2) move on to the next section.

The downward slope of a demand curve illustrates the pattern that as ________ decreases, ________ increases.

price : quantity demanded

  • price : quantity supplied
  • quantity supplied : quantity demanded

MGMT-1010: Introduction to Business Copyright © by Lumen Learning is licensed under a Creative Commons Attribution 4.0 International License , except where otherwise noted.

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  • Law of Demand

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An Introduction to Law Demand

Demand is a vital economic concept that works both at the market level and personal level. It also includes several concepts like law of demand, factors affecting it and eventually the impact of it on the economy at large. Therefore, it is essential for students to get this concept right from the very beginning as it will help to interpret the importance of the law of demand in economics. 

However, to make things easier, learners need to delve into the core of this topic to score well. 

What is the Law of Demand in Economics?

The law of demand in economics explains that when other factors remain constant, the quantity demand and price of any product or service show an inverse equation. It also means that whenever the value of a specific product increases, demand for the same declines; the exact opposite can also be observed. From this comes a concept of a demanding schedule. 

Demand Schedule

This graphical representation shows that different quantities of product are demanded at varying prices. It thus calls for a law of demand graph to explain elaborately. 

Analysis of Law of Demand 

In order to run a business in a competitive market, it is essential to understand the law of demand definition economics. This law effectively indicates consumer choice behavior. Moreover, there is a dedicated graph that shows this relationship and helps economists to take economic measures accordingly. 

This concept is based on a natural customer choice behavior. As a matter of fact, when the price of any good or service rises, demand for the same tends to fall as the consumers will not spend extra money on something than its standard price and will look for cheaper alternatives. 

Moreover, often this question comes up in examinations like “explain law of demand with diagrams”. Therefore, it will be wiser to prepare the question beforehand to answer accurately. 

(Image will be Uploaded Soon)

The above diagram contains a law of demand curve that is always downward sloping. It clearly shows that when the price increases from p2 to p1, the necessitated quantity decreases from Q2 to Q1. 

Similarly, the law of demand in economics is an interesting chapter that also includes some related sub-topics like exceptions of this law and so on. 

Let’s discuss!

Law of demand exceptions .

In a few cases, the law of demand in economics does not follow the rule. For instance, often it happens that the demand for a particular product rises along with the price. Therefore, it is vital to know about the exceptions as well to comprehend the law better and understand real-life incidents. 

For a good of prestige, the demand almost remains the same even if the price increases. 

Similarly, for necessary commodities as well, the demand rises due to its increasing consumption, despite the price rise. 

This applies as well in the case of Giffen goods. 

These are some of the certain scenarios where the law deviates from its standard rendition. 

Thus, to learn more about the law of demand in economics, download the Vedantu App and read vital notes on this topic. Moreover, they also offer various problems on this topic so that you can get a better grip on Economics. 

Factors Affecting Demand

Several factors can influence the shape and position of the demand curve. Rising income tends to raise demand for common economic commodities since individuals are more eager to spend. The availability of close alternative items that compete with particular economic goodwill tends to reduce demand for that good since they can satisfy the same types of consumer wants and needs. Availability of closely complementary products, on the other hand, will tend to raise demand for an economic item, because combining two goods might be even more useful to consumers than utilising them individually. Other variables that vary the pattern of customer preferences for how the product may be utilized and how urgently it is needed, such as future expectations, changes in background environmental circumstances, or changes in the actual or perceived quality of a good, might shift the demand curve.

Importance of Law of Demand

Price Determination - The study of law of demand is helpful for a trader to fox up the price of a commodity. He understands how much demand will decline if the price of the commodity rises to a certain level, and how much demand will grow if the price of the commodity falls. The market demand schedule can offer information on overall market demand at various prices. It helps management in determining how much of a price rise or drop in a commodity is beneficial. 

Importance to the Farmers - Farmers' economic situation is affected by whether they have a good or bad crop. If a good crop fails to generate demand, the crop's price will drop drastically. The farmer will not benefit from a successful harvest, and vice versa.

Importance to the Government - Governments evaluate the law of demand when deciding whether or not to impose additional taxes or tariffs on products, particularly when the amount demanded is not strongly influenced by price.

Major Facts about Law of Demand

It expresses the inverse relationship between demand and price. It basically states that an increase in price will cause a decrease in the amount requested, whereas a decrease in price would cause a rise in quantity demanded. 

It simply makes a qualitative statement, indicating the direction of change in the quantity requested but not the magnitude of change. 

It does not demonstrate a proportionate link between price changes and subsequent demand changes. If a price increases by 10%, the quantity demanded may decrease in any proportion.  

The law of demand is one-sided since it only explains how price changes affect the amount required. It makes no mention of the impact of changes in demand on the price of the item.

Difference between Demand and Quantity Demanded

It is critical in economic theory to distinguish between the concept of demand and the amount demanded. The term "demand" in the chart refers to the green line that runs through A, B, and C. It expresses the link between the urgency of consumer desires and the quantity of the economic item available. A shift in demand shows that this curve's position or shape has changed; it represents a movement in the underlying pattern of consumer desires and requirements in relation to the resources available to satisfy them.

The term "quantity demanded," on the other hand, refers to a point on the horizontal axis. Variations in the quantity demanded are only due to price changes and do not indicate any shift in customer preferences. Changes in quantity demanded simply refer to movement along the demand curve as a result of a price adjustment. These two concepts are sometimes confused, but this is a common misunderstanding: prices do not reduce or raise demand; rather, they alter the amount required.

Relationship between Supply and Demand

The law of supply and demand asserts that the price of a product or service will vary depending on the amount sold by the supplier and the demand from consumers. Therefore, if a product is costly, the seller will ramp up manufacturing. However, If the price is extremely high, buyers will likely buy less of it, resulting in lower demand.

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FAQs on Law of Demand

1. What are the types of Demand? 

Demand in Economics refers to the number of consumers who are willing to purchase a product or service in a given period. There are generally 7 types of demand. A) Joint Demand, B) Composite Demand, C) Long-run and Short-run Demand, D) Income Demand, E) Price Demand, F) Competitive Demand and G) Direct and Derived Demand. 

Nevertheless, irrespective of the type of demand, it is intermingled with Supply. Both demand and supply determine the price of a particular product or service available in the market. 

2. What is the relationship between Demand and Supply? 

Demand and Supply are closely connected. In simple words, when the Supply of a particular good or service exceeds the demand, the price of the same falls. On the other hand, while this demand surpasses Supply, the price rises. 

Hence, Supply and price are inversely proportional when demand remains unchanged. Several economic theories work in line with this fundamental theory. 

3. What is the Demand Curve? 

The demand for a particular product mainly depends on its price and other factors such as preferences and income of consumers, the price of other products, etc. Moreover, in Economics, except the price, other factors are considered as fixed. Therefore, a curve is drawn on the basis of quantity and price that is known as a demand curve and the law associated with it is called the law of demand curve.  

The vertical axis represents price, whereas the horizontal axis represents quantity. This curve is always downward sloping. 

4. Where can I get useful study material for various concepts of Economics?

Vedantu's website or app makes it simple for students to get all of the essential Commerce Study Material. These solutions provide you with precise, clear, and error-free answers to all of your business problems. Textbooks, Solution Papers, and Notes may all be used to help you read more fully and improve your test preparation. When students struggle to understand the foundations of economics, they frequently memorise their courses; nevertheless, in secondary school, mugging up is not an option. The best way to study for tests is to understand the fundamentals of each chapter. That is why Vedantu offers up-to-date study materials for students to help them grasp the fundamentals of each subject. These resources are accessible for free on the Vedantu app as well. Vedantu's app works on smartphones and other mobile devices.

  • Law of Demand and Demand Curve

Law of demand is defined as “quantity demand of product decreases if the price of the product increases.” That is if the price of the product rises then the quantity demand falls. Because the opportunity cost of consumer increase which leads consumers to go for any other alternative or they may not buy it. The law of demand and its exceptions are really interesting concepts with many real-life applications. Let us understand.

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Consumer preference and demand.

Consumer preference theory helps us to understand which combination of two goods a consumer will buy based on the market prices of the goods and subject to a consumer’s budget constraint. What we are interested in, is the amount of a good a consumer actually buys. This is best explained in Microeconomics using the demand function. We will see how to derive the demand function from Indifference curves and what the famous law of demand means.

Browse more Topics under Theory Of Consumer Behaviour

  • Preferences of the Consumer
  • Demand Curve and Law of Demand
  • Market Demand

Derivation of Demand Curve

We know that a consumer maximizes his satisfaction by choosing a bundle of two goods that also falls within his budget , through the IC analysis. We will use this to derive the demand curve for a commodity. Let us consider two goods: X and Y. Let the prices of the two goods are P x and P y and the money income is “M”. The consumer can maximize his utility at the point where his budget line is tangential to the indifference curve. Let this be point ‘E’ in the diagram. The quantity of X consumed is X 1.

law of demand assignment

Fig.1: Derivation of Demand Curve

  We now vary the price level of good X, keeping the price of good Y and money income constant. Let P x fall. With the same money income, the real purchasing power of the consumer has actually increased. The maximum amount of good X he can buy increases as P x falls since “M” is unchanged. So, the horizontal intercept of the budget line changes (shifts to the right). But the vertical intercept is unchanged because “M” and P y are unchanged. Therefore, the budget line must pivot away from the origin along the horizontal axis as P x falls.

The new budget line is now tangential to a higher IC at point ‘F’. Here, the quantity of X consumed is X 2 , which is greater than X 1. So, at a lower price of X, a greater quantity of it can be consumed. Again, let the P x fall further. The budget line pivots further away and the new point of tangency becomes G. The quantity of X consumed is X 3 .

Demand Schedule

We get a Demand schedule that looks like:

Different quantities demanded at varying price levels are given in the schedule above. We can graph these combinations of price and quantity demanded of X. The resulting curve is the Demand Curve of X. It is a graphical representation of various quantities demanded of a commodity at different prices.

What is Law of Demand?

Note in figure 1, that the demand curve slopes downwards. This is because as we kept decreasing the price of X, the quantity demanded kept increasing. At a lower price, consumers have a more real income to spend on purchasing the same good, so they can purchase more of it. This leads to a negative relationship between price and quantity demanded. This relation, in economics, is called the Law of Demand . It states that ceteris paribus (other things being equal), “As price falls, the quantity demanded increases and vice versa.”

Law of Demand Graph

law of demand graph

Source: economics discussion

Exceptions to the Law of Demand

There are certain cases in which when the price rises, quantity demanded also rises (and vice versa). Thus, the law of demand does not apply in these cases. These are termed as exceptions to the law of demand:

  • When the good in question is a prestige good. As the price rises, quantity demanded must rise for prestige value.
  • When the good is a necessity. Even if the price rises, consumption must rise as the good is a necessity.
  • An expectation of a further increase in prices causes more to be consumed at current high prices.
  • When the good in question is a Giffen good.

Learn more about Exceptions to the Law of Demand in more detail here .

Solved Example for You

Question: Is the demand curve of a good always downward sloping?

Answer: No, the demand curve of a good may not necessarily be downward sloping. There are certain exceptions to the law of demand. In these cases, as price increases, quantity demanded also increases. Examples of such cases are Giffen goods, necessities, prestige goods, etc. Here, the price-demand relation becomes positive and we get a positive slope demand curve. In all other cases where the law of demand prevails, the demand curve is downward sloping.

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Resources: Discussions and Assignments

Module 3 assignment: problem set — supply and demand.

You can click on the link to download the problem set for this module:  Supply and Demand Problem Set.

Supply and Demand Problem Set [1]

Use the following graph to answer questions 1 through 3:.

A blank coordinate plane with both x and y axes increasing by unit of one from 0 to 25.

  • Plot the following Price and Quantity combinations: (4, 8), (1, 2), (5, 10)
  • Is your graph more likely to be a demand curve or a supply curve? Why?
  • Using the equation of a line, and P for price and Q for quantity, what is the algebraic formula of this curve?

Use the following graph to answer questions 4 and 5:

A blank coordinate plane where the x axis increases by units of 1 from 0 to 26 and represents Quantity. The y axis increases by units of 5 from 0 to 110 and represents Price.

  • Plot the following Price and Quantity combinations. Note that the points are given in the format (Quantity, Price).(0, 50), (2, 40), (4, 30), (6, 20), (8, 10)
  • Using the equation of a line, what is the algebraic formula of this demand curve?  

Use the following information to answer questions 6 through 10:

Suppose the equation of the line changes to [latex]P=-5\times Q+70[/latex]. Compute the quantity demanded at each indicated price.

  • Price: $50, Quantity:
  • Price: $40, Quantity:
  • Price: $30, Quantity:
  • Price: $20, Quantity:
  • Price: $10, Quantity:

Use the following graph to answer questions 11 through 14:

  • Let’s call the original demand curve (from Question 4) D1 and the new demand curve (from Questions 6-10) D2. Plot both of the demand curves on the graph above.

Use the formulas for the two demand curves to compute the quantity demanded shown by each curve at a price of $34.

  • Demand Curve D1: Price: $34, Quantity:
  • Demand Curve D2: Price: $34, Quantity:
  • Describe what has happened to demand in this problem.

Use the following information to answer questions 15 and 16:

Use the following two equations for the demand and supply curves to compute the equilibrium price value.

Demand curve: [latex]Q_d=3300-2P[/latex]

Supply curve: [latex]Q_s=500+8P[/latex]

  • What is the value of the equilibrium price?
  • What is the equilibrium quantity?

Use the following information to answer questions 17 and 18:

Suppose Congress cuts personal income tax rates.

  • Draw a simple supply and demand graph to show how this would affect the market for refrigerators.
  • Why does this shift occur? How does that affect the equilibrium price and quantity? Explain.

Use the following information to answer questions 19 and 20:

Suppose that scooter workers accept a pay cut of 2 dollars per hour.

  • Draw a graph to show how this would affect the market for scooters.

[1] This assignment by Lumen Learning is licensed under a Creative Commons Attribution 4.0 International License. You can access an alternative means to plotting points at https://www.desmos.com/calculator .

  • Supply and Demand Problem Set. Provided by : Lumen Learning. License : CC BY: Attribution
  • Accountancy
  • Business Studies
  • Commercial Law
  • Organisational Behaviour
  • Human Resource Management
  • Entrepreneurship
  • CBSE Class 11 Microeconomics Notes

Chapter 1: Introduction

  • Introduction to Microeconomics
  • Microeconomics and Macroeconomics: Meaning, Scope, Difference and Interdependence
  • Difference Between Expansion of Supply and Increase in Supply
  • Interdependence between Microeconomics and Macroeconomics
  • Economic Problem & Its Causes
  • Central Problems of an Economy

Chapter 2: Consumer's Equilibrium

  • Theory of Consumer Behaviour
  • Utility Analysis : Total Utility and Marginal Utility
  • Law of Diminishing Marginal Utility (DMU) : Meaning, Assumptions & Example
  • Consumer's Equilibrium in case of Single and Two Commodity
  • Indifference Curve : Meaning, Assumptions & Properties
  • Budget Line: Meaning, Properties, and Example
  • Difference between Budget Line and Budget Set
  • Shift in Budget Line
  • Consumer’s Equilibrium by Indifference Curve Analysis

Chapter 3: Demand

  • Theory and Determinants of Demand
  • Individual and Market Demand
  • Difference between Individual Demand and Market Demand
  • What is Demand Function and Demand Schedule?

Law of Demand

  • Movement along Demand Curve and Shift in Demand Curve
  • Difference between Expansion in Demand and Increase in Demand
  • Difference between Contraction in Demand and Decrease in Demand
  • Substitute Goods and Complementary Goods
  • Difference between Substitute Goods and Complementary Goods
  • Normal Goods and Inferior Goods
  • Difference between Normal Goods and Inferior Goods
  • Types of Demand
  • Substitution and Income Effect
  • Difference between Substitution Effect and Income Effect
  • Difference between Normal Goods, Inferior Goods, and Giffen Goods

Chapter 4: Elasticity of Demand

  • Price Elasticity of Demand: Meaning, Types, Calculation and Factors Affecting Price Elasticity
  • Methods of Measuring Price Elasticity of Demand: Percentage and Geometric Method
  • Relationship between Price Elasticity of Demand and Total Expenditure

Chapter 5: Production Function: Returns to a Factor

  • Production Function: Meaning, Features, and Types
  • What is TP, AP and MP? Explain with examples.
  • Law of Variable Proportion: Meaning, Assumptions, Phases and Reasons for Variable Proportions
  • Relationship between TP, MP, and AP
  • Law of Returns to Scale: Meaning and Stages
  • Difference between Returns to Factor and Returns to Scale

Chapter 6: Concepts of Cost and Revenue

  • What is Cost Function?
  • Difference between Explicit Cost and Implicit Cost
  • Types of Cost
  • What is Total Cost ? | Formula, Example and Graph
  • What is Average Cost ? | Formula, Example and Graph
  • What is Marginal Cost ? | Formula, Example and Graph
  • Interrelation between Costs
  • Concepts of Revenue| Total Revenue, Average Revenue and Marginal Revenue
  • Break-even Analysis: Importance, Uses, Components and Calculation
  • What is Break-even Point and Shut-down Point?

Chapter 8: Theory of Supply

  • Theory of Supply: Characteristics and Determinants of Individual and Market Supply
  • Difference between Stock and Supply
  • Law of Supply: Meaning, Assumptions, Reason and Exceptions
  • Types of Elasticity of Supply

Chapter 9: Forms of Market

  • Market : Characteristics & Classification
  • Perfect Competition Market: Meaning, Features and Revenue Curves
  • Monopoly Market: Features, Revenue Curves and Causes of Emergence
  • Monopolistic Competition: Characteristics & Demand Curve
  • Oligopoly Market : Types and Features
  • Difference between Perfect Competition and Monopoly
  • Difference between Perfect Competition and Monopolistic Competition
  • Difference between Monopoly and Monopolistic Competition
  • Distinction between the four Forms of Market(Perfect Competition, Monopoly, Monopolistic Competition and Oligopoly)
  • Long-Run Equilibrium under Perfect, Monopolistic, and Monopoly Market

Chapter 10: Market Equilibrium under Perfect Competition

  • Determination of Market Equilibrium under Perfect Competition
  • Effects of Changes in Demand and Supply on Market Equilibrium
  • Price Ceiling and Price Floor or Minimum Support Price (MSP): Simple Applications of Supply and Demand
  • Difference between Price Ceiling and Price Floor
  • Important Formulas in Microeconomics | Class 11

What is the Law of Demand?

The Law of Demand states that there is an inverse relationship between the price and quantity demanded of a commodity, keeping other factors constant or ceteris paribus. It is also known as the First Law of Purchase . There are several other factors besides the price of the given commodity that affect the quantity demanded of a commodity. Therefore, in order to understand the separate influence of one factor affecting the demand, it is essential that the other factors are kept constant. Hence, under the Law of Demand, it is assumed that other factors are constant. 

Law of Demand

Table of Content

Assumptions of Law of Demand

  • Facts about Law of Demand

Derivation of Law of Demand

Reasons for law of demand, exceptions to law of demand.

The assumptions on which the Law of Demand is based are as follows:

1. The price of substitute goods does not change.

2. The price of complementary goods also remains constant.

3. The income of the consumer does not change. 

4. Tastes and preferences of the consumers remain the same.

5. People do not expect the future price of the commodity to change. 

Let’s take an example to understand the concept of the Law of Demand better. 

law of demand assignment

The above table clearly shows that as the price of the commodity decreases, its quantity demanded increases. Also, the demand curve DD is sloping downwards from left to right, which means that there is an inverse relationship between the price and quantity demanded of the commodity. 

Facts about Law of Dem and

1. one-side.

As the Law of Demand only talks about the effect of change in price on the change in quantity demanded of a commodity and not about the effect of change in quantity demanded of a commodity on the change in its price, it is one-sided. 

2. Inverse Relationship

The Law of Demand also states that there is an inverse relationship between the price and quantity demanded of a commodity. It means that if the price of a commodity rises, then the quantity demanded will fall, and if the price reduces, then the quantity demanded will increase. 

3. Qualitative, not Quantitative

The Law of Demand makes only a qualitative statement and not a quantitative statement. In other words, it only shows the direction of change in the quantity demanded and not the magnitude of change. 

4. No Proportional Relationship

The Law of Demand does not indicate any proportional relationship between the change in the price of a commodity and the change in its demand. It means that if the price of a commodity falls by 10%, the rise in demand can be 20%, 30%, or any other proportion. 

According to the Law of Demand, while keeping other factors constant, there is an inverse relationship between the demand and price of a commodity. It means that the demand for a commodity falls or increases with a rise or fall in its price, respectively. The inverse relationship between the price and demand for a commodity can be derived by:

1. Marginal Utility = Price Condition

2. Law of Equi-Marginal Utility

1. marginal utility = price condition or single commodity equilibrium condition.

According to this condition, a consumer buys only that much quantity of a commodity at which its Marginal Utility is equal to the Price. However, the Marginal Utility of a commodity can be more or less than its Price.

When Marginal Utility is less than the price of a commodity (MU<Price): The Marginal Utility of a commodity is less than the price when the price of the commodity increases. A rise in the price of the commodity discourages the consumer to purchase more of it, showing that a rise in the price of a good decreases its demand. The consumer in this buy will reduce the demand of the commodity until the Marginal Utility becomes equal to the price again. 

When Marginal Utility is more than the price of a commodity (MU>Price):   The Marginal Utility of a commodity is greater than the price when the price of the commodity falls. A fall in the price of the commodity encourages the consumer to purchase more of it, showing that a fall in the price of a good increases its demand. The consumer in this case will buy the commodity until the Marginal Utility falls and becomes equal to the price again. 

Hence, it can be concluded that the demand for a commodity increases when its price falls, and vice-versa, i.e., there is an inverse relationship between the demand and price of a commodity.  

According to the law of equi-marginal utility, a consumer will be at equilibrium when he spends his limited income in a way that the ratios of the Marginal Utilities and the respective prices of the commodities are equal. The Marginal Utility falls as the consumption of the commodity increases. 

In the case of two commodities, say X and Y, the equilibrium condition will be:

\frac{MU_X}{P_X}=\frac{MU_Y}{P_Y}

Now, the effect of rise or fall in the price of the commodity on the equilibrium condition can be as follows:

When the price of Commodity X rises: If the price of commodity X increases, then MUx/Px<MUy/Py. It means that because of a rise in the price, the consumer is getting more Marginal Utility from Good Y as compared to Good X. So, he/she will buy more of Good Y and less of Good X, showing that the demand for Good X will reduce due to an increase in its price. 

When the price of Commodity X falls: If the price of commodity X falls, then MUx/Px>MUy/Py. It means that because of a fall in the price, the consumer is getting more Marginal Utility from Good X as compared to Good Y. So, he/she will buy more of Good X and less of Good Y, showing that the demand for Good X will rise due to a fall in its price. 

A consumer buys more of a commodity when its price is lower than a higher price because of the following reasons:

1. Law of Diminishing Marginal Utility: The Law of Diminishing Marginal Utility states that as more and more units of a commodity is consumed, the utility derived by the consumer from each successive unit keeps decreasing. It means that the demand for a commodity depends on its utility. Therefore, if a consumer gets more satisfaction from a commodity, he/she will pay more for it because of which the consumer will not be prepared to pay the same price for extra units of that commodity. Hence, the consumer will buy more of the commodity only when its price falls. 

2. Substitution Effect: Substituting one commodity in place of another commodity when the former becomes relatively cheaper is known as the substitution effect. In other words, when the price of a commodity (let’s say coffee) falls, it becomes relatively cheaper than its substitute (let’s say tea), assuming that the price of the substitute (tea) does not change because of which the demand for the given commodity (coffee) increases. 

3. Income Effect: When the real income of the consumer changes because of the change in the price of the given commodity, there is an effect on its demand. This effect on demand is known as Income Effect. In other words, when there is a fall in the price of the given commodity, it increases the purchasing power of the consumer, resulting in an increase in the ability of the consumer to buy more of it. For example, suppose Sayeba’s pocket money is Rs 100, and she buys 10 ice-creams for Rs 10 each from it. Now, if the price of the ice cream falls to Rs 5 each, it will increase her purchasing power, and she can buy 20 ice-creams from her pocket money. 

Price Effect is the combined effect of Income Effect and Substitution Effect (Price Effect = Substitution Effect + Income Effect). 

4. Additional Customers: When the price of a commodity falls, various new customers who could not purchase the commodity earlier due to its high price are now in a position to buy it. Besides new customers, the existing or old customers of the commodity will also start demanding more of the commodity because of the fall in price. For example, if the price of pizza falls from Rs 200 to Rs 150, then many new customers who were not in a position to afford it earlier can now purchase it because of the fall in price. Also, the existing customers can now demand more pizza, resulting in an increase in its total demand.

5: Different Uses: Some commodities have different uses, among which some of them are more important, and the rest are less important. When the price of such commodities increases, consumers restrict its use to the most important purposes, increasing its demand for those purposes, and the demand for less important uses of the commodity gets reduced. However, when the price of the commodity reduces, consumers will use it for every purpose, whether it is important or not. For example, Milk has various uses such as for drinking, making cheese, butter, sweets, etc. If the price of Ghee increases, then the consumers will restrict their use to the important purpose of drinking.

1. Giffen Goods: The special kind of inferior goods on which the consumers spend a big part of their income are known as Giffen Goods. The demand for these goods increases with an increase in price and falls with a decrease in price. This phenomenon was initially observed by Sir Robert Giffen and is popularly known as Giffen’s Paradox. For example, rice is an inferior good and wheat is a normal good. Hence, if the price of rice falls, the consumer will spend less on rice and will start buying more wheat.

2. Fear of Shortage: If the consumers expect that a commodity will become scarce in the near future, they will start buying more of it in the present, even if the price of the commodity rises because of the fear of its shortage and rise in its price in the future. For example, in the initial period of COVID, consumers demanded more of the necessity goods like wheat, pulses, etc., even at a higher price due to their fear of general insecurity and shortage in the near future. 

3. Status Symbol or Goods of Ostentation: Another exception to the law of demand is the goods that are used as status symbols by the people. For example, people buy goods like antique paintings because of the status symbol they want to maintain. They demand antique paintings only because their price is high. It means that if the price of antique paintings reduces, then the consumers will no longer see it as a status symbol and will reduce its demand. 

4. Ignorance: Sometimes consumers are unaware of the prevailing price of a good in the market. In such cases, they buy more of a commodity, even at a higher price. 

5. Necessities of Life: The commodities which are necessary for human life have more demand no matter whether their price reduces or increases. For example, demand for necessity goods like medicines, pulses, wheat, etc., will increase, even if their price increases.

6. Change in Weather: When there is a change in the weather, demand for some goods changes, even if their price increases. For example, demand for raincoats in the rainy season increases, even if their price increases.

7. Fashion-related goods:   The goods related to fashion are demanded more, even when their price is high. For example, if a specific model of Mobile Phone is in fashion, then consumers will buy it, even if its price increases. 

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Law of Demand

Law of Demand actually says that the higher the price, the lower the quantity demanded, because consumers’ opportunity cost to acquire that good or service increases, and they must make more tradeoffs to acquire the more expensive product. It holds in most instances, except in case of Giffen good. It explains consumer choice behavior when the price changes. The law of demand states that, other things remaining same, the quantity demanded of a good increases when its price falls and decreases when the price rises.

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  1. Law of Demand Assignment Flashcards

    Consumer demand influences which goods and services are available, the quantities available, and the prices of the goods and services we buy. Study with Quizlet and memorize flashcards containing terms like This demand curve demonstrates the law of demand. The law of demand states that as the price of a good rises, the quantity demanded of that ...

  2. Law of demand definition and example (video)

    Transcript. The law of demand states that when the price of a product goes up, the quantity demanded will go down - and vice versa. It's an intuitive concept that tends to hold true in most situations (though there are exceptions). The law of demand is a foundational principle in microeconomics, helping us understand how buyers and sellers ...

  3. Law of demand (article)

    Demand curves will be somewhat different for each product. They may appear relatively steep or flat, and they may be straight or curved. Nearly all demand curves share the fundamental similarity that they slope down from left to right, embodying the law of demand: As the price increases, the quantity demanded decreases, and, conversely, as the price decreases, the quantity demanded increases.

  4. What Is the Law of Demand in Economics, and How Does It Work?

    Law Of Demand: The law of demand is a microeconomic law that states, all other factors being equal, as the price of a good or service increases, consumer demand for the good or service will ...

  5. The Law of Demand (With Diagram)

    In this article we will discuss about:- 1. Introduction to the Law of Demand 2. Assumptions of the Law of Demand 3. Exceptions. Introduction to the Law of Demand: The law of demand expresses a relationship between the quantity demanded and its price. It may be defined in Marshall's words as "the amount demanded increases with a fall in price, and diminishes with a rise in price". Thus it ...

  6. Law of Demand

    The law of demand states that the quantity demanded of a good shows an inverse relationship with the price of a good when other factors are held constant ( cetris peribus ). It means that as the price increases, demand decreases. The law of demand is a fundamental principle in macroeconomics. It is used together with the law of supply to ...

  7. The Law of Demand

    A demand curve shows the relationship between price and quantity demanded on a graph like Figure 1, below, with quantity on the horizontal axis and the price per gallon on the vertical axis.Note that this is an exception to the normal rule in mathematics that the independent variable (x) goes on the horizontal axis and the dependent variable (y) goes on the vertical.

  8. Law of Demand: Definition and Examples

    Law of Demand: Definition and Examples. Written by MasterClass. Last updated: Aug 31, 2022 • 2 min read. The law of demand is one of the most basic economic theories. Learn how it works, and how it's different from—but related to—the law of supply. The law of demand is one of the most basic economic theories.

  9. Law of Demand

    The law of supply and demand asserts that the price of a product or service will vary depending on the amount sold by the supplier and the demand from consumers. Therefore, if a product is costly, the seller will ramp up manufacturing. However, If the price is extremely high, buyers will likely buy less of it, resulting in lower demand.

  10. Demand and the determinants of demand (article)

    Demand is a description of all quantities of a good or service that a buyer would be willing to purchase at all prices. According to the law of demand, this relationship is always negative: the response to an increase in price is a decrease in the quantity demanded. For example, if the price of scented erasers decreases, buyers will respond to ...

  11. Law of Demand Lesson Plan

    This 45-minute interactive lesson (in Google-Docs format) introduces the Law of Demand by engaging students with the media they use everyday, like our short instructional video on the demand curve. The Demand Curve. Watch on. But that's not the only way this lesson connects the demand curve to your students' lives: with current events, graphing ...

  12. PDF A Classroom Experiment Illustrating the Law of Demand

    A fundamental economic concept presented in an introductory economics class is the law of. demand - the quantity demanded of a good falls when the price of the good rises. Put more. simply, people buy less when the price rises. Graphically this is represented as a downward.

  13. PDF The Law of Demand

    The Law of Demand Prof. Samuelson: "Law of demand states that people will buy more at lower price and buy less at higher prices, others thing remaining the same." Ferguson: "According to the law of demand, the quantity demanded varies inversely with price". Chief Characteristics: 1. Inverse relationship. 2. Price independent and demand dependent variable.

  14. The Law of Demand Assignment

    Demand shifts cause changes in markets. When consumers understand the basics of demand they understand that their buying choices are important. Consumer demand influences which goods and services are available, the quantities available, and the prices of the goods and services we buy. This demand curve has shifted.

  15. Law of Demand and Demand Curve

    Law of demand is defined as "quantity demand of product decreases if the price of the product increases.". That is if the price of the product rises then the quantity demand falls. Because the opportunity cost of consumer increase which leads consumers to go for any other alternative or they may not buy it. The law of demand and its ...

  16. Supply, demand, and market equilibrium

    About this unit. Economists define a market as any interaction between a buyer and a seller. How do economists study markets, and how is a market influenced by changes to the supply of goods that are available, or to changes in the demand that buyers have for certain types of goods? Economists define a market as any interaction between a buyer ...

  17. Module 3 Assignment: Problem Set

    Let's call the original demand curve (from Question 4) D1 and the new demand curve (from Questions 6-10) D2. Plot both of the demand curves on the graph above. Use the formulas for the two demand curves to compute the quantity demanded shown by each curve at a price of $34. Demand Curve D1: Price: $34, Quantity: Demand Curve D2: Price: $34 ...

  18. Law of Demand

    The Law of Demand also states that there is an inverse relationship between the price and quantity demanded of a commodity. It means that if the price of a commodity rises, then the quantity demanded will fall, and if the price reduces, then the quantity demanded will increase. 3. Qualitative, not Quantitative.

  19. Law of Demand

    Article. Law of Demand actually says that the higher the price, the lower the quantity demanded, because consumers' opportunity cost to acquire that good or service increases, and they must make more tradeoffs to acquire the more expensive product. It holds in most instances, except in case of Giffen good. It explains consumer choice behavior ...