LAW OF DEMAND
In economics, the law of demand is an economic law that states that consumers buy more of a good when its price decreases and less when its price increases (ceteris paribus).
The greater the amount to be sold, the smaller the price at which it is offered must be, in order for it to find purchasers.
Law of demand states that the amount demanded of a commodity and its price are inversely related, other things remaining constant. That is, if the income of the consumer, prices of the related goods, and tastes and preferences of the consumer remain unchanged, the consumer’s demand for the good will move opposite to the movement in the price of the good.
Mathematical expression
The negative relation (i.e., higher price attracts lower demand & lower prices encourages high quantity to be bought by the consumers) is based on logic and experience. Mathematically, the inverse relation may be stated with causal relation as:
Qx = f(Px)
Where, Qx is the quantity demanded of x goods
f is the function of independent variables contained within the parenthesis, and
Px is the price of x goods.
Hence, in the above model, the function (f) is a varying one i.e., the law of demand postulates Px as the causal factor (independent variable) and Qx is the dependent variable.
.
Assumptions
Every law will have limitation or exceptions. While expressing the law of demand, the assumptions that other conditions of demand were unchanged. If remain constant, the inverse relation may not hold well. In other words, it is assumed that the income and tastes of consumers and the prices of other commodities are constant. This law operates when the commodity’s price changes and all other prices and conditions do not change. The main assumptions are
§ Habits, tastes and fashions remain constant.
§ Money, income of the consumer does not change.
§ Prices of other goods remain constant.
§ The commodity in question has no substitute or is not competed by other.
§ The commodity is a normal good and has no prestige or status value.
§ People do not expect changes in the prices.
In economics, the law of demand is an economic law that states that consumers buy more of a good when its price decreases and less when its price increases (ceteris paribus).
The greater the amount to be sold, the smaller the price at which it is offered must be, in order for it to find purchasers.
Law of demand states that the amount demanded of a commodity and its price are inversely related, other things remaining constant. That is, if the income of the consumer, prices of the related goods, and tastes and preferences of the consumer remain unchanged, the consumer’s demand for the good will move opposite to the movement in the price of the good.
Mathematical expression
The negative relation (i.e., higher price attracts lower demand & lower prices encourages high quantity to be bought by the consumers) is based on logic and experience. Mathematically, the inverse relation may be stated with causal relation as:
Qx = f(Px)
Where, Qx is the quantity demanded of x goods
f is the function of independent variables contained within the parenthesis, and
Px is the price of x goods.
Hence, in the above model, the function (f) is a varying one i.e., the law of demand postulates Px as the causal factor (independent variable) and Qx is the dependent variable.
.
Assumptions
Every law will have limitation or exceptions. While expressing the law of demand, the assumptions that other conditions of demand were unchanged. If remain constant, the inverse relation may not hold well. In other words, it is assumed that the income and tastes of consumers and the prices of other commodities are constant. This law operates when the commodity’s price changes and all other prices and conditions do not change. The main assumptions are
§ Habits, tastes and fashions remain constant.
§ Money, income of the consumer does not change.
§ Prices of other goods remain constant.
§ The commodity in question has no substitute or is not competed by other.
§ The commodity is a normal good and has no prestige or status value.
§ People do not expect changes in the prices.