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Law of Demand

Demand for a good and service is affected by different factors like the price of the good and service, income, taste, habit and preference of consumer, price of related goods etc. In case, a change in these factors, the demand for a good and service also alters. If all these factors except the price remain constant, a rise in the price, causes a decrease in demand for the corresponding good and service and a fall in the price brings about an increase in their demand. It verifies that there is an inverse relationship between the price and demand for the good and service. Such an inverse relationship between the two variables is explained by law of demand. Hence, the law of economics that states the opposite relationship between the these variables is known as law of demand.

Law of demand is based on the following assumptions.
1- There is no change in income of the consumer/buyer.
2- There is no change in habit, taste and preference of consumer.
3- There is no change in the price of related goods.
4- There is no expectation to change in the price of the goods in future.
5- The size of population, season and custom should not change.
6- The goods should be normal.
Law of demand can be stated by the help of the following demand schedule and diagram.
Demand Schedule
Unit price of good-X in

2

4

6

8

Qnt. demanded of good-X

4

3

2

1


In the above demand schedule various prices of good-X have been shown in the first row and the quantities of good-X demanded at each corresponding price have been shown in the second row. Given the assumptions, the demand schedule shows that at per unit  price equal to $2, demand for good-X is 4 units. when the price rises from $2 to $4, $6 and$8, demand for good-X falls to 3, 2 and 1 units. Here, an increase in price is causing a fall in demand for good-X. Thus, given the assumptions, the demand schedule is indicating that there is a negative relationship between the price and demand for good-X.
The demand schedule can be plotted in a diagrammatical form as shown below.
In the above diagram, quantities demanded of good-X and the prices have been measured along X and Y axis respectively. The quantity demanded of good-X is 4 units at 
$2 per unit price. As the price goes up to $4, $6 and$8, the demand for good-X falls to 3, 2 and 1 units. The combinations between the prices and quantity demanded are represented by curve DD. This is the demand curve which is slopping downward to the right. The negative slope of the demand curve also verifies that law of demand states the negative relationship between price and quantity demanded of a commodity.
This is how law of demand states the negative relationship between the price of a good and its quantity demanded, remaining all other factors except price constant.

2- Why demand curve slopes downward to the right
While studying law of demand, it is found that the demand curve is negatively sloping downward to the right. There are some specific reasons for sloping a demand curve downward. These reasons have been explained here.

2.1- Income Effect
One of the reasons for why a demand curve slopes downward to the right is income effect. Income effect can be defined as an effect that falls on demand for a good as a result of change in income of the consumer. The consumer's real income changes with a rise or a fall in the price of the good. when the price falls, the good becomes relatively cheaper and the consumer can buy more quantity of it and with a rise in the price, he can purchase only a small quantity of it. This is why there is a negative relationship between the price and demand and the negative relationship causes  a demand curve slopes downward.

2.2- Substitution Effect
Demand for a good is highly influenced as a result of change in the price of its substitutable good. The effect that falls on demand for a good due to the change in the price of its substitutable good is known as substitution effect. for example, when the price of Pepsi falls, comparatively it is cheaper than its substitutable drink Fanta and the consumers of Fanta switch to Pepsi. This results an increase in demand for Pepsi because of substitution effect. Such an effect maintains negative relationship between the price and quantity demanded and the demand curve slopes downward.

2.3- Number of Consumers
The number of consumers for a good increases when there is a fall in the price of goods they consume. It all happens because the low income group of consumers also afford to pay for goods and as a result, the demand for goods goes up. On the contrary, with a rise in the price, the demand for goods falls because most of the consumers can not afford to pay for the goods. In this way, demand for goods and the price negatively relate to each other and the demand curve slopes downward.

2.4- Multiple use of a commodity
There are different varieties of commodity and some variety can be put to several uses. when the price of such a variety of commodity decreases, its demand increases because the consumer put them to different uses and he cuts in their uses when the price goes up. In this way an inverse relationship between the price and demand for the quantity of a commodity occurs. This is why demand curve tends to downward.

3- Exceptions of Law of Demand
Law of demand states the inverse relationship between the price and demand for a good. However, it is not exactly the same in every situation. In some situations, the price of a good and its quantity demanded are positively related and the demand curve is also sloping upward. It implies that law of demand fails to operate if it does not meet the criteria for its application. Hence, the criteria that make law of demand fail to operate are the exceptions of law of demand. Some of the exceptions of law of demand have been mentioned here as,

3.1- Ignorance of consumer
One of the exceptions of law of demand is the ignorance of a consumer. When the consumer is ignorant in relation to the price of a good, possibly he can demand even more quantity of the good at its higher price. Likewise, he can demand a small quantity of the good at its lower price due to his ignorance to the to the price-change. In such a situation law of demand does not operate in a real sense.

3.2- Abnormal Situation
In case of abnormal situation like strikes, war, brutality etc. law of demand does not operate because in such circumstances, the consumers start hoarding goods without any fall in the price. So the demand for necessary goods instantly goes up but the price does not fall and law of demand does not apply.

3.3- Giffen goods
There are some inferior goods having negative income effect, to which we call Giffen goods. When the price of a Giffen goods falls, its demand also falls and with the rise in its price, demand for it also increases. Hence law of demand does not apply in case of Giffen goods.

3.4-  Distinct goods
On the consumer's perceptions, some goods are distinct goods and their demand goes up with an increase in their price. All it happens so, because the consumer wants to show himself distinct in his society by demanding and consuming distinct goods. In such a case, demand for such a distinct good rises with an increase in its price and vice-versa. Thus law of demand does not apply perfectly.

3.5- Depression
During depression period, a large segment of population remains unemployed and unable to make sufficient income for their livelihood. In such a situation, the consumers demand only  a small quantity of highly necessary goods even if there is a fall in the prices. So law of demand in a depression period is not applicable. 

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