Demand

Law of Demand

A. Law of Demand

Law of Demand states that there is an inverse relation between the price of the commodity and its quantity demanded assuming all other Determinants of demand stay constant. It means that when the price of the commodity decreases demand increases and when the price of the commodity rises the demand falls.

B. Determinants of Demand:-

  • Own price of commodity
  • Price of related goods(Substitute goods and Complementary goods)
  • Income of the consumer
  • Tastes and preferences
  • Expectations
  • Population size
  • Distribution of income

Demand

The above table and diagram show that as the price of the good reduces from Rs. 5 to Rs. 4, the demand for a good increase from 100 to 200 units.

C. Assumptions of the Law of Demand:-

  • Tastes and preference of the consumer are assumed to be constant.
  • There is no change in the income of the buyers.
  • Prices of the related goods do not change.
  • Consumers do not expect any significant change in the availability of the commodity in the near future.

D. Causes of the Law of Demand:-

  • Law of Diminishing Marginal Utility
  • Income effect
  • Substitution effect
  • Size of consumer group
  • Different uses

E. Exceptions to the Law of Demand:-

  • Articles of Distinction
  • Giffen goods
  • When consumer judge quality of the commodity by its price

 

 

 

 

 

 

 

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