In this session we will be discussing what is the law of demand, the law of demand meaning economics, the law of demand definition economics, the formula for the law of demand, what is the basic principles of the law of demand economics, what are the assumptions of the law of demand, what is the causes of the law of demand definition economics, types of the law of demand, limitation/exceptions of the law of demand, how is demand reacted to supply, why is the law of demand important, demand vs quantity demanded, factors affecting demand, the law of demand vs law of supply, the law of demand examples.
What is the law of demand?
Price and quantity demanded both are the thing, which is the most important role display in the market. both defined by the law of demand. the law of demand states that the relationship between price and quantity demanded of goods and services. Price is the most important determinant of demand but it also depends on consumer income, price of other goods, advertisement, fashion, government policy on so on.
According to the law of demand, all things remaining the same, the quantity demanded of goods and services increases when its price decrease, and when the price of goods and services is increased than the quantity demanded is decreased. so, the above information is defined there is an inverse relationship between price and quantity demanded of goods and services. According to Alfred Marshall, “The amount demanded increases with a fall in price and diminishes with a rise in a price.”
The law of demand is one of the most fundamental concepts in economics. It is used together with the law of supply to determine the efficient allocation of resources in an economy and find the optimal price and quantity demanded of a commodity.
Formula For Law of Demand
Qdx = f (Px, M, Po, T,……….)
Where,
Qdx = A quantity demanded of commodity x.
f = A function of independent variables contained within the parenthesis.
Px = Price of commodity x.
Po = Price of the other commodities.
T = Taste of the household.
The bar on the top of M, Po, and T means that they are kept constant. The demand function can also be symbolized as under:
Qdx = f (Px) ceteris paribus
Ceteris Paribus. In economics, the term is used as a shorthand for indicating the effect of one economic variable on another, holding constant all other variables that may affect the second variable.
In the session on the law of demand definition economics, we will be also discussing the definition of the law of demand economics.
Law of demand definition economics
Here is define the law of demand different definition in economics with the different authors. Like that, Robertson, Ferguson, Marshall, E. Miller, Prof. Samuelson.
Define the law of demand definition economics by Robertson, “Other things being equal, the lower the price at which a thing is offered, the more a man will be prepared to buy it.”
Define the law of demand definition economics by Ferguson, “Law of Demand, the quantity demanded varies inversely with price.”
Define the law of demand definition economics by E. Miller, “Other things remaining the same, the quantity demanded of a commodity will be smaller at higher market prices and larger at lower market prices”.
“Other things remaining the same, the quantity demanded increases with every fall in the price and decreases with every rise in the price”.
Marshall, who is defining the law of demand definition economics, “The greater the amount to be sold, the smaller must be the price at which it is offered in order that it may find purchasers; or in other words, the amount demanded increases with a fall in price and diminishes with a rise in price.”
Prof. Samuelson, who is defining the law of demand definition economics, “The law of demand states that people will buy more at lower prices and buy less at higher prices, other things remaining the same”.
The law of demand can be explained with the help of the following table and a diagram.
Demand Schedule
| Price of T-Shirt | Quantity demanded of T-shirt |
| 100 | 500 |
| 200 | 400 |
| 300 | 300 |
| 400 | 200 |
| 500 | 100 |
The above table illustrates the law of demand. The demand for T-shirts decreases with an increase in the price. For example, when the price of a T-shirt’s Rs 100, then the quantity demand is 500 pieces. When price increase to Rs 200, then the demand for T-shirt decreases to 400 pieces. This relationship between price and quantity demand gives the law of demand.
The above demand schedule can be presented in the following diagram.
In the above diagram, price is measured along the y-axis, and quantity of goods is measured along the x-axis respectively. The law of demand is explained with the help of a diagram. When the price goes up, then its quantity demanded decreases and vice-versa.
In the session on the law of demand definition economics, we will be also discussing the assumption of the law of demand.
What is the assumption of the law of demand?
- No change in the consumer’s income
- No change in size and composition of the population
- No change in prices of related goods
- No change in consumer’s taste, preference, etc
- No expectation of a price change in the future
- No change in government policy
No change in the consumer’s income
According to the law of demand, no change in the consumer’s income is the first assumption of the law of demand. No change in the consumer’s income defines the consumer’s income must remain the same or should not change (i.e., neither rise nor fall).
so, it is defined Income is assumed to remain constant, he may buy more even at a higher price, invalidating the law of demand.
No change in size and composition of the population
According to the law of demand, no change in size and composition of the population is the second assumption of the law of demand. No change in size and composition of the population defines any of the country’s population must neither increase nor decrease.
so, it defines the population size and its composition must remain constant because the change in population would also increase quantity demand for goods and services even when their prices are higher and vice-versa.
No change in prices of related goods
According to the law of demand, no change in prices of related goods is the third assumption of the law of demand. No change in prices of related goods defines those types of goods which have not been changed for example Substitute Goods and Complementary Goods.
So here is define both good Tea and Coffee as the Substitute Goods and Petrol and Cars as the Complementary Good. there are no changes in price in the future.
No change in consumer’s taste, preference
According to the law of demand, no change in consumer’s taste, preference is the fourth assumption of the law of demand. No change in consumer’s taste, preference defines the taste, preference, habit, fashion, etc should remain constant.
Because if the consumer changes their taste, preference, habit, fashion then it breaks the functionality or validity of the law of demand.
No expectation of a price change in the future
According to the law of demand, no expectation of a price change in the future is the last second assumption of the law of demand. No expectation of a price change in the future defines the law to remain valid is not to expect any future possibilities regarding a change or fluctuation in the prices of goods and services.
Because the price of goods and services are changing in the future then it will affect the current demand for goods. For example, if the consumer is expecting a change in the future prices of goods and services then the current demand for such goods will also change and vice-versa.
No change in government policy
According to the law of demand, no change in government policy is the last assumption of the law of demand. No change in government policy defines the level of taxation and fiscal policy of the government remains the same throughout the operation of the law. Otherwise, changes in income tax, for instance, may cause changes in consumers’ income or commodity taxes and may lead to distortion in consumer preferences.
In the session on the law of demand definition economics, we will be also discussing the characteristics of the law of demand.
Characteristics of the law of demand
The characteristics of the law of demand can be dedicated to the following points.
- Inverse Relationship
- Price independent and Demand dependent variable
- Other things being equal
- Qualitative statement
- Concerned with a certain period of time
Inverse relationship
According to the law of demand, all things remaining the same, the quantity demanded of goods and services increases when its price decrease, and when the price of goods and services is increased than the quantity demanded is decreased. so, the above information is defined there is an inverse relationship between price and quantity demanded of goods and services.
Price independent and Demand dependent variable
According to the independent variable. The price of goods and services is an independent variable because it is defined by the law of demand as the change in the quantity demand of goods and services due to a change in its price. price is an independent variable and quantity demand is a dependent variable also defined by the mathematical term.
Other things being equal
The other things remain the same in those situations when this law holds good. so these ‘other things remaining the same are called the assumptions of the law of demand.
Qualitative statement
The law of demand is a qualitative statement, which tells us that the quantity demanded of goods and services increases when its price decrease, and when the price of goods and services is increased than the quantity demanded is decreased. But it does not tell us how much change in price will bring how much change in quantity demanded.
Concerned with a certain period of time
A particular period of time is most important so the law of demand is related to time. for example, weekly, monthly, annually, etc.
In the session on the law of demand definition economics, we will be also discussing what is the basic principles of the law of demand.
What are the basic principles of the law of demand?
The law of demand states that the relationship between price and quantity demanded of goods and services. When the price of the commodity is decreasing the consumer consumes more and more commodities. Which shows the basic principles of the law of demand.
In the session on the law of demand definition economics, we will be also discussing the causes of the law of demand.
Causes of the law of demand
The causes of the law of demand can be dedicated to the following points.
- The law of diminishing marginal utility
- Various uses of same good
- Attraction to the new buyers
- Income effect
- Substitution effect
The law of diminishing marginal utility
According to the law of diminishing marginal utility. The law state that the consumer consumes more and more units of the same commodity, then the additional utility derived from that commodity decrease. for this reason, more quantity will be purchase by a consumer only at a lower price. for example, think about the price of 1 kg apple is $5 then the consumer consumes 1 kg but if the price of 1 kg apple decreases 5 to 3 then the consumer consumes more and more apple.
Various uses of the same goods
Various uses of the same goods are the second reason for the law of demand. It is also important for the law of demand because Various uses of the same goods show that the goods have several uses and can be utilized for different purposes. when price decrease, then the same goods may be used for several uses. for this reason, quantity demanded increases and vice-versa. for example, when the per-unit cost of electricity decreases, it is used for several purposes like cooking, heating, lighting. but if the price of electricity increases then it is used only for the essential purpose of lighting.
Attraction to the new buyers
Attraction to the new buyers is the third reason for the law of demand. It is also important for the law of demand because Attraction to the new buyers shows the price of the commodity decrease, then other consumers who haven’t the ability to consume that commodity earlier due to its high price, start purchasing it. for example, in the offseason, the price of the mango is high so that it is less demanded. but in the season of mango, the price of mango decreases, and a lot of consumers afford to purchase that good. due to this demand increase.
Income effort
The income effect is the last second reason for the law of demand. It is also important for the law of demand because the income effect shows the change in the income of the consumer. when the price of the commodity decreases, the real income of a consumer increases. due to a decrease in the price, the purchasing power of a consumer increases. Now same monetary income is able to purchase more commodities, ultimately increase demand for that good.
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