The law of demand states that other things remaining constant if the price of a product declines then the demand for such product increases whereas if the price of a product rise then the demand for such product declines. Therefore, we can say that an inverse relationship exists between the price of the given commodity and the quantity demanded of such commodity, ceteris paribus.
The Law of demand is one of the important laws studied in microeconomics. The law of demand expresses the relationship between the price of a good and its quantity demanded. The concept of the law of demand clarifies that if the other things remain constant, the increase in the price of the commodity results in the decrease of its quantity demanded and vice versa where the other things remaining constant include the other determinants of demand such as the income of the consumer, price of the related goods ( substitute & complementary goods), consumer’s taste & preferences, consumer’s expectations, number of consumers in the market, weather conditions and other factors that can influence the demand of the commodity directly or indirectly.
Symbolically law of demand can be expressed as:
Dk = f(Pk), ceteris paribus
Dk= Quantity demanded of commodity K
Pk=Price of the commodity K
For example, A consumer Mr. X is willing to buy 200 units of chocolates at the price of $20 per unit then if the price increases to $25 per unit then Mr. X is willing to buy 150 units and if the price falls to $10 per unit then Mr. X is willing to buy 400 units. This shows that the price of a commodity & its quantity demanded is inversely proportional.
Assumptions of law of demand
The various assumptions of law of demand are as follows:
- The product is a normal consumer good.
- All the units of the commodity are identical i.e. homogeneous.
- There is no change in the income of the consumer.
- There is no change in the price of related goods.
- The taste & preferences of the consumers remain constant.
- Government policy & weather conditions are constant.
The tabular representation of the law of demand which shows the different quantity of a commodity a consumer is willing to purchase at different prices at a particular period of time. Again, the demand schedule is prepared upon the assumption that the other things except for the price of the commodity are constant.
The example of demand schedule for the individual customer for a commodity K is shown below.
|Price/unit ($)||Quantity demanded (Units)||Reference point|
The above table shows that if the price of commodity K is $500, then the quantity demanded by the individual customer is 5 units. When the price decreases to $400, then the quantity demanded rises to 10 units as so on.
The representation of the demand function graphically is called as the demand curve. When we represent the above demand schedule graphically we get the below graph.
The above schedule shows the different quantities of commodity K demanded at various prices at a given period of time. The price of a commodity which is an independent variable is measured along the Y-axis and quantity demand which is a dependent variable is measured along the X-axis. From the above graph, it can be seen that the demand curve is negatively sloped i.e. it slopes downward to the right.
Thus, the law of demand states that the price of the commodity and its quantity demanded are inversely proportional to each other as the rise in price leads to the fall in quantity demanded and vice versa. The law of demand works both on individual demand function and market demand function.