Law of demand

Definition

In economics, the law of demand is an economic

law that states that consumers buy more of a
good when its price decreases and less when
its price increases (ceteris paribus).

Mathematically, the inverse relation

may be stated with causal relation as:
Qx = f(Px)Where, Qx is the quantity demanded of x
goods
f is the function, and
Px is the price of x goods.
Hence, in the above model, the function (f) is a
varying one i.e., the law of demand
postulates Px as the causal factor (independent
variable) and Qx is the dependent variable.

Negative relationship
Dd

Price P
2

P
1

Dd

Q1

Q2

Quantity

The Assumptions
The main assumptions are
Habits, tastes and fashions remain constant
Money, income of the consumer does not
change.
Prices of other goods remain constant
The commodity in question has no substitute
The commodity is a normal good and has no
prestige or status value.
People do not expect changes in the prices.

Exceptions to the law of demand

Giffen goods
Commodities which are used as status
symbols
Expectation of change in the price of
commodity

Determinants of demand

Prices of related commodities

Income of the individual
Tastes and preferences
Tastes of the consumers
Wealth
Expectations regarding the future
Climate and weather
State of business

The different types of

demands
Individual demand:
It is the quantity of a commodity demanded by
an individual consumer at a particular price
during a given period of time.
Market demand:
It is the total quantity of a commodity demanded
by all the consumers in the market during a given
period of time.

The different types of demands

Joint demand:
When two or more commodities are jointly
needed to satisfy a single want, then the demand
for such goods are said to be joint demand.
Composite demand:
When a commodity is demanded for a number of
uses, then the demand for that commodity is said
to composite in nature.

The different types of demands

Competitive demand:
When two goods are close substitutes of one
another, then the demand for such goods is said
to be competitive in nature.
Derived demand:
When demand for a commodity gives rise to
demand for another commodity, then it is said to
be as a derived demand.

The different types of demands

Variation in demand:
It refers to extension or contraction in demand
which is exclusively due to change in the price of
a product.
Changes in demand:
Change in demand refers to increase or decrease
in demand which is due to change factors other
than price of the commodity.

The different types of demands

Giffen goods:
It refers to some inferior goods which are
demanded in smaller quantities when their price
falls.
Direct demand:
Goods which yield direct satisfaction to a
customer can be termed as the direct demand.