BROWSE

Law Of Demand

Definition

In microeconomics, the law of demand states that, "conditional on all else being equal, as the price of a good increases, quantity demanded decreases ; conversely, as the price of a good decreases, quantity demanded increases ". In other words, the law of demand describes an inverse relationship between price and quantity demanded of a good. Alternatively, other things being constant, quantity demanded of a commodity is inversely related to the price of the commodity. For example, a consumer may demand 2 kilograms of apples at Rs 70 per kg; he may, however, demand 1kg if the price rises to Rs 80 per kg. This has been the general human behaviour on relationship between the price of the commodity and the quantity demanded. The factors held constant refer to other determinants of demand, such as the prices of other goods and the consumer's income. There are, however, some possible exceptions to the law of demand, such as Giffen goods and Veblen goods.

What is the '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 decrease, and vice versa. The law of demand 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.

Explaining 'Law Of Demand'

The chart below depicts the law of demand using a demand curve, which is always downward sloping. Each point on the curve (A, B, C) reflects a direct correlation between quantity demanded (Q) and price (P). So, at point A, the quantity demanded will be Q1 and the price will be P1, and so on.


Further Reading


An empirical comparison of published replication research in accounting, economics, finance, management, and marketing
www.sciencedirect.com [PDF]
… new epistemological vistas of original thought both in Islamic economics and finance, and in … universal principles of all the world religions on the socio-politico- economics of globalization … of the Islamic school of thought established by Imam Shafei Islamic law Islamic consultation …

The derived demand for consolidated financial reportingThe derived demand for consolidated financial reporting
www.sciencedirect.com [PDF]
… new epistemological vistas of original thought both in Islamic economics and finance, and in … universal principles of all the world religions on the socio-politico- economics of globalization … of the Islamic school of thought established by Imam Shafei Islamic law Islamic consultation …

Trends in park tourism: Economics, finance and managementTrends in park tourism: Economics, finance and management
www.tandfonline.com [PDF]
… new epistemological vistas of original thought both in Islamic economics and finance, and in … universal principles of all the world religions on the socio-politico- economics of globalization … of the Islamic school of thought established by Imam Shafei Islamic law Islamic consultation …

Power laws in economics and financePower laws in economics and finance
www.annualreviews.org [PDF]
… new epistemological vistas of original thought both in Islamic economics and finance, and in … universal principles of all the world religions on the socio-politico- economics of globalization … of the Islamic school of thought established by Imam Shafei Islamic law Islamic consultation …

The law and economics of consumer financeThe law and economics of consumer finance
academic.oup.com [PDF]
… new epistemological vistas of original thought both in Islamic economics and finance, and in … universal principles of all the world religions on the socio-politico- economics of globalization … of the Islamic school of thought established by Imam Shafei Islamic law Islamic consultation …

Law, endowments, and financeLaw, endowments, and finance
www.sciencedirect.com [PDF]
… new epistemological vistas of original thought both in Islamic economics and finance, and in … universal principles of all the world religions on the socio-politico- economics of globalization … of the Islamic school of thought established by Imam Shafei Islamic law Islamic consultation …



Q&A About Law Of Demand


What does each point on the curve represent?

Each point represents a direct correlation between quantity demanded (Q) and price (P). So at point A quantity demanded will be Q1 and price will be P1; at point B quantity demanded will be Q2 and price will be P2; etc.

What does the law of demand state?

The law of demand states that as the price of a good or service increases, consumer demand for the good or service will decrease.

Where on a graph would you find points A, B, C?

Points A, B, C are found on a downward sloping curve.

Does the law of demand apply to all goods and services?

Yes, it applies to all goods and services.

How is quantity demanded affected by price?

As price increases, quantity demanded decreases.