The Law of Demand

The Law of demand is one of the important laws of consumption.  It states the normal economic behavior of Man and expresses the inverse relationship between the price of the commodity and its quantity demanded.

The Law of demand states that “other things being equal, demand varies inversely with price”.  In other words, when the price of the commodity rises, the demand for the commodity falls and when price falls, the demand for the commodity rises.

The law of demand holds good only when all the factors which influence demand are held constant.  We assume the following conditions.

1.  The consumer’s income remains the same.

2.  Consumer’s tastes and preferences remain the same.

3.  The price of substitutes remains the same.

4.  There is no change in customs, traditions and fashion.

5.  There is no change in the supply as well as the quality of the commodity.

6.  Weather conditions remain the same.

7.  There is no quantitative and qualitative change in population.

8.  There is no change in Government policy.

The law of demand can be explained with the help of a market demand schedule.                

  MARKET DEMAND SCHEDULE

Price of the commodity X	Demand in kgs
5	100
4	200
3	300
2	400
1	500

   

  When the price of the commodity X is Rs 5, the quantity demanded is 100kgs, when price falls from Rs 5 to Rs 4, the quantity demanded expands from 100kgs to 200 kgs.  When price falls from Rs 4 to Rs 3, the quantity demanded expands from  200 kgs to 300kgs.  When price falls from Rs 3 to Rs 2, the quantity demanded expands to 400kgs and so on.
The law of demand can be explained with the help of a diagram.

In the above diagram, OX axis represents the quantity demanded and OY axis measures the price of the commodity X. When the price of commodity X is Rs 5,  100 kgs are demanded and when price falls to Rs 4, 200 kgs are demanded and so on, when we plot all the points and join them, we get DD a downward sloping demand curve which shows the inverse relationship between the price of a commodity and its quantity demanded.