Economics

Law of Demand

“Demand is essential for the creation, survival and profitability of a firm. “Demand in economics is the desire to possess something and the willingness and the ability to pay a certain price in order to possess it”.
–J. Harvey
“Demand in economics means desire
backed up by enough money to pay for the
good demanded”
–Stonier And Hague

Characteristics of Demand:
1.Price : Demand is always related to price.
2.Time : Demand always means demand
per unit of time, per day, per week, per month or per year.
3.Market : Demand is always related to the market, buyer and sellers.
4.Amount: Demand is always a specific
quantity which a consumer is willing to purchase.

Demand Function:
Demand depends upon price. This means
demand for a commodity is a function of
price. Demand function mathematically is
denoted as,
D = f (P) where, D = Demand, f = function
P = Price

Law of Demand:
The Law of Demand was first stated by
Augustin Cournot in 1838. Later it was
refined and elaborated by Alfred Marshall.

Definition:
The Law of Demand says as “the quantity
demanded increases with a fall in price
and diminishes with a rise in price”.
–Marshall
“The Law of Demand states that people will buy more at lower price and buy less at higher prices, other things remaining the same”.
– Samuelson

Assumptions of Law of Demand:
1. The income of the consumer remains
constant.
2. The taste, habit and preference of the
consumer remain the same.
3. The prices of other related goods should not change.
4. There should be no substitutes for the commodity in study.
5. The demand for the commodity must be continuous.
6. There should not be any change in
the quality of the commodity.

Given these assumptions, the law of demand operates. If there is change even in one of these assumptions, the law will not operate.
Demand Schedule:

Explanation:
The law of demand explains the relationship
between the price of a commodity and the
quantity demanded of it. This law states

that quantity demanded of a commodity
expands with a fall in price and contracts with a rise in price. In other words, a rise in price of a commodity is followed by a contraction demand and a fall in price is followed by extension in demand.Therefore, the law of demand states that there is an inverse relationship between the price and the quantity demanded of a commodity.

In the diagram 2.4, X axis represents the quantity demanded and Y axis represents the price of the commodity.DD is the demand curve, which has a negative slope i.e., slope downward from left to right which indicates that when price falls, the demand expands and when price rises, the demand contracts.

Market Demand for a Commodity:

The market demand curve for a commodity
is derived by adding the quantum demanded
of the commodity by all the individuals
constituting the market. In the diagram
given above, the final market demand curve
represents the addition of the demand curve
of the individuals A, B and C at the same price.
When Price is ₹3, the Market demand is
2+2+4 = 8
When Price is ₹1, the Market demand is
6+8+8 = 22
As in the case of individual demand
schedule, the Market Demand Curve is at
a price, at a place and at a time.

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