/ / Law of Demand, Assumptions, Schedule, Example & Exceptions

Law of Demand, Assumptions, Schedule, Example & Exceptions

Law of Demand, Assumptions, Schedule, Example & Exceptions. To clearly understand the law of demand, we must first know what demand is. So, we will first explain the meaning of demand, then we will move towards the law of demand definition, assumptions of the law of demand, the exception to the law of demand, demand curve, and demand schedule.

Meaning of Demand:

According to microeconomics, you will have a demand for a certain product when you fulfill these three conditions. If all the three conditions are fulfilled, thus there exists a demand for the product.

  1. You want the product
  2.  There is an  ability to pay for the product
  3. You are willing to pay for the product

Example:

You can see in your daily life, that if you want something and are willing but not able to purchase it. So, there will not be any demand from your side. On the contrary, you see someone who has the necessary financing to buy the car but does not want to buy. So, again there is not any kind of demand from him. Hence, all three conditions must exist for demand.

Demand Schedule:

The representation of the relationship quantity demanded with each price in the form of the table is called the demand schedule. The table below is the demand schedule, where you can relationship of each quantity demanded with its price.

Price (per unit of CD)Quantity Demanded (CD)
225
420
615
810
105

Demand Curve:

When the relationship between price and quantity demanded is presented in the form of a graph. The curve obtained on the graph is called the demand curve.

law of demand

Law of Demand Definition:

The law of demand tells us about the relationship between price and quantity demanded of the product. The law states that “other things being equal, the quantity demanded of a product increases with the fall in rice and vice versa” thus it simply shows the inverse relationship between price and quantity demanded of a product. As per Marshall’s definition, other things being equal, the amount demanded of a product) increases with a fall in price and diminishes with the price rise.

Explanation of the Law of Demand:

To understand the law of demand, we will follow the same demand schedule as above. Let us explain it in detail now;

Price (per unit of CD)Quantity Demanded (CD)
225
420
615
810
105

In this schedule, it is quite clear that when the price of the CD is 2 dollars, one demands 25 units of the CD. Gradually, when the price increase, we see a decreasing tendency in the quantity demanded. That is why when the price move to 2 dollars, the quantity decreases from 25 units to 20 units. Similarly, when the price increases to 6, the quantity demanded further decreases from 20 units to 15 units and so on. Finally, when the price reaches to dollar ten, the quantity demanded decreases and reaches 5 units. So, we can clearly view the inverse relationship between the two i.e. price and quantity demanded.

Diagram:

law of demand

Assumptions of the Law of Demand:

There are certain assumptions of the law of demand which we will discuss one by one. Under these assumptions, the law of demand operates.

  1. The income of the consumers should not change

For the law of demand, the income of consumers should remain constant. Otherwise, the law of demand will not operate because with the increase in income, the consumers’ demand may rise even when there is an increase in the price. For example, if the price of the shoes goes up and at the same time the income also goes up. Then, the demand for the shoes will not fall.

  1. Habits, tastes, and fashions of consumers should not change

The habits, taste, and fashion of the consumers should remain constant for the law of demand to be in operation. Because, if you are habitual of something, you will consume that product regardless of the price. Similarly, if something is in trend and fashion, then you may buy more of that even when there is an increase in the prices. So, for the law of demand to be in operation, these factors should remain constant.

  1. Substitute prices should remain constant

The prices of the substitute also influence the demand for the product. So, it should remain constant. For example, if we are concerned with the demand for coke, then we have to assume the price of Pepsi to be constant. Just in case there is an increase in the price of the Pepsi. Then consumers will shift towards coke and the demand for the coke increase without any change in its price. This will violate the law of demand. That is why the price of the substitute good should remain constant.

  1. No change in prospects

The expectations about the price of the product should remain constant. For example, if people predict that the price will fall short, then people will not buy the product even when there is a fall in the prices currently.

On the contrary, if there is a prediction of higher prices in near future, then consumers will buy more even when there is an increase in the prices.

Exceptions to the Law of Demand:

There are some situations where the law of demand doesn’t apply. They are the following;

Necessities of Life

If the good is the basic necessity of life, then the demand will not decrease even when the price increases.

War:

If there is any fear of war in near future, then people may buy more products even at higher prices

Giffen Goods:

In the case of Giffen goods, the law of demand does not operate. For example, if the price of the salt falls, the demand will not increase.

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