law of demand
The law of demand is a fundamental principle in economics that states that, all else being equal,
as the price of a good or service decreases, the quantity demanded of that good or service
increases, and vice versa. This inverse relationship between price and quantity demanded is
based on consumer behavior: when a good is cheaper, more people are willing to buy it, and
when it is more expensive, fewer people are inclined to purchase it.
Key Points of the Law of Demand
1. Inverse Relationship: Price and quantity demanded move in opposite directions.
2. Ceteris Paribus: This principle holds only when all other factors (such as income, tastes, and
prices of related goods) remain constant.
3. Downward-Sloping Demand Curve: The law of demand is visually represented by a downward-
sloping demand curve on a graph, where the x-axis represents quantity demanded, and the y-
axis represents price.
Reasons Behind the Law of Demand
1. Substitution Effect: When the price of a good decreases, it becomes relatively cheaper than
substitutes, leading consumers to buy more of it.
2. Income Effect: A price decrease boosts the purchasing power of consumers, allowing them to
buy more with the same income.
3. Diminishing Marginal Utility: Each additional unit of a good provides less additional satisfaction.
Lower prices encourage consumers to buy more because the additional satisfaction is worth the
lower cost.
Exceptions to the Law of Demand
Giffen Goods: Some inferior goods may see an increase in demand when their price rises, due to
the strong income effect.
Veblen Goods: High-priced goods that are considered status symbols can see demand increase
as prices rise, reflecting their prestige value.
Overall, the law of demand is foundational in understanding consumer behavior and is widely
used in pricing strategies, economic forecasting, and market analysis.
