Law of Demand
Introduction
The demand for a commodity in the market is a multi-valued function. It depends on a number of variables as discussed above. But in law of demand we keep all other factors constant except price. By changing only the price of the good, we can study its effect on the quantity demanded. That means factors other than price which have a bearing on the demand for a commodity are deliberately kept constant to study the influence of price on the demand. This is, in essence, the sum and substance of the law of demand
Meaning and Definition
Other things remaining constant, the higher the price of a commodity, the smaller is the quantity demanded and lower is the price, the larger the quantity demanded. In other words, demand for a commodity varies inversely with price. Symbolically –
Dx α 1/Px
Where Dx stands for quantity demanded of commodity ‘x’
Px = Price of commodity ‘x’
1/Px= Inverse of price of ‘x’
α = Proportional relation
Assumptions
The law of demand is based on the following assumptions:
- The consumer is a rational human being.
- His taste and preference remain constant.
- Income of the consumer remains constant.
- Price of related goods like substitutes and complementaries remain unchanged.
- The size and composition of population remain constant
- The distribution of income and wealth is given and remains constant.
- Climatic and weather conditions remain unchanged
Explanation of the Law
The law of demand states a common experience of all buyers in the market. People generally purchase more of a commodity when it is cheaper and less of a commodity when it is dearer. We can explain this phenomenon with the help of a demand schedule and a demand curve.
Demand schedule is a list of various quantities of a commodity which a consumer is willing to purchase at different alternative prices.
