Law of Demand
- mansigoyal | Wed Apr 14 2021
In layman terms, demand means a request made as of an existent right. Here, we are going to discuss the economics of demand. Demand is the quantity of output that a consumer is willing and able to purchase at various prices during a given period of time. The relationship between the two variables i.e. Quantity and price is depicted through a negatively sloped curve called Demand curve.
There are innumerous factors that influence the demand of a product. Law of demand states that there is an inverse relation between the quantity demanded and price offered which explicitly means, with an increase in price of Good X, the quantity demanded of Good X falls and vice versa. This gives rise to a negatively sloped curve. A very important point to take note of is that Law of Demand assumes all the other factors as ceteris paribus.
Lets have a look at other determinants of demand. Suppose, you are a consumer of shoes.You get to know that prices of socks have risen sharply. Given that price of shoes remains constant, you will prefer not to buy shoes because you are a rational consumer. Shoes and socks are considered as complementary goods, the products which are to be used together. Next, consider the price of Dabur honey has fallen. Now, you will want to buy less of Patanjali honey, given that the price of patanjali honey is unchanged. This factor is called price of related goods, the complements and the substitutes which affect the demand of a product at a given price.
Income of a consumer also affects demand for a product. Your income increases, you will prefer not to buy coarse grains for your meal because coarse grains are inferior goods. On the other hand, you will buy more of a luxury item at the same price. This is how the income of a consumer affects the demand for the product.
Seasons affect the demand of a product. For instance, demand for jackets rises in winter season. Population of a place is one more factor. A rise in population will lead to increase in demand of a product at the same price. Taste’s and preferences of a consumer is one more. Suppose you are no more inclined towards a shampoo X, you stop buying it and start buying the other at the same prices.
The change in quantity due to change in price is termed as change in quantity demanded.The change in quantity due to change in other determinants is known as change in demand of a product.
Giffen goods is an exception to Law of demand. Giffen goods obey a positive relation between price and quantity of a product. When the price of potato increased, after purchasing potato, a consumer did not have so many surpluses to buy meat. So the rise in price of potato compelled him to buy more potato and thus raised the demand for potato.This is against the law of demand. This is also known as Giffen paradox.