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Law of Demand
Meaning
The Law of Demand states that other things remaining the same (ceteris paribus), quantity demanded of a commodity increases when its price falls and decreases when its price rises.
This shows an inverse relationship between price and quantity demanded.
Statement
“Other things remaining constant, demand for a commodity varies inversely with its price.”
Example
If the price of apples falls from ₹100 to ₹80 per kg, consumers will buy more apples.
If the price rises to ₹120 per kg, demand will fall.
Demand Curve
The demand curve slopes downward from left to right, showing the inverse relationship between price and quantity demanded.
Assumptions of the Law of Demand
Income of consumers remains constant
Tastes and preferences do not change
Prices of related goods remain constant
No expectation of future price changes
Population remains constant
Determinants of Demand
Determinants of demand are the factors that influence the quantity demanded of a commodity.
1. Price of the Commodity
Price ↓ → Demand ↑
Price ↑ → Demand ↓
2. Income of the Consumer
Normal goods: Income ↑ → Demand ↑
Inferior goods: Income ↑ → Demand ↓
3. Prices of Related Goods
Substitute goods (tea & coffee): Price of one ↑ → Demand for the other ↑
Complementary goods (car & petrol): Price of one ↑ → Demand for the other ↓
4. Tastes and Preferences
Favorable change in taste increases demand; unfavorable change reduces demand.
5. Size of Population
Increase in population leads to increase in demand.
6. Expectations about Future Prices
If prices are expected to rise in future, present demand increases.
7. Distribution of Income
Equal distribution of income generally increases demand for necessities.
8. Advertisement
Effective advertising increases demand by influencing consumer preferences.
Conclusion
The law of demand explains consumer behavior in relation to price, while determinants of demand explain why demand changes even when price remains constant.