Law of Demand
Law of Demand
The law of demand is one of the fundamental laws of economics. The law of demand explains the relationship between the price and demand of a commodity. It is a matter of practical experience that when the price of a commodity increases, its demand decreases and when it decreases, its demand increases.
Therefore, there is an inverse relationship between the price and demand of a commodity. In economics, this relationship of price with sales is called the law of demand. The law of demand has been defined by eminent economists as follows:
Prof. Marshall “The quantity demanded increases when the price falls and decreases when the price rises.”
Prof. Duvet – “If there is stability in the conditions of demand, then the increase in the price of a commodity or service causes a decrease in its demand and the fall in the price causes an increase in its demand.”
Prof. Samuelson – “The law of demand states that when other things remain constant, people buy more at lower prices and buy less at higher prices.”
Dennis Robertson – “Other things remaining constant, the lower the price at which a commodity is offered, the more people are ready to buy it.”
On the basis of the analytical analysis of the above definitions, it can be concluded that according to the law of demand, the demand for the commodity increases when the price decreases and the demand decreases when the price increases.
This law remains effective on the condition of “other things remaining constant”. “Other things” include other determinants of demand, such as consumer’s income, price preference of substitutes and complements and customer’s preference, etc. These elements remain constant only on a short-term basis. They change on a long-term basis. Therefore, the law of demand is only short-term.
On the basis of the analysis of the above definitions, it can be concluded that according to the law of demand, the demand for a commodity increases when the price falls and the demand decreases when the price rises.
This law remains effective on the condition of “other things remaining the same”. “Other factors” include other determinants of demand, such as consumer’s income, price preference of substitutes and complements and consumer’s preference, etc. These factors remain constant only on short run basis. They change on long run basis. Hence, the law of demand is only short run.
Explanation with examples
For example – Let us assume that when the price of mango was Rs. 50, consumers used to purchase 10 mangoes. When the price falls to Rs. 40, consumers purchase 20 mangoes. Accordingly, when the price falls to Rs. 30, consumers purchase 30 mangoes. Then when the price falls to Rs. 20, they purchase 40 mangoes and when the price falls to Rs. 10, consumers purchase 50 mangoes. In other words, we can say that when the price of mangoes falls gradually, the demand for mangoes increases continuously. This shows the law of demand.
The law of demand can be explained with the help of demand schedule and demand curve. Demand Schedule According to Dr. Alfred Marshall, ‘Demand Schedule’ contains a list of prices and quantities. In other words, demand schedule is a list of quantities of the commodity that are purchased by the consumer at different prices. Demand schedule does not tell what the price is. It only tells that this amount will be purchased at different prices. The lower the price, the higher will be the quantity purchased. Similarly, the higher the price, the lower will be the quantity purchased. Thus, demand schedule can be defined as- “The list of quantities of any economic commodity that will be purchased from a specified market at a given time.”
On the basis of the above example, we can express the demand schedule as follows
It is clear from the demand schedule that as the price of mangoes gradually falls, the demand for mangoes increases continuously in the opposite direction.
The law of demand can also be explained through the demand curve.
Demand curve
According to Friedman – “The demand of a given group for a particular commodity may be defined as a set of loci, each of which represents the maximum quantity of the commodity that the group will purchase per unit of time at a specified price. It represents the effort which relates the flow of price rate to time.
For many problems it will be useful to accept the demand curve as a boundary line separating two spaces, the left side of the demand curve representing those points which can be met under the given conditions of demand in the sense that the demanders will buy the specified quantity, and the right side of the demand curve representing those points which cannot be met in the sense that the demanders will not be willing to buy at the specified quantity.
