LAW OF DEMAND :- " Other things remaining the same when the price of any commodity increases its demand falls and when price falls its demand increases."
According to the law of demand there is inverse relationship between demand and price.
In simple language was can say that when the price of any commodity falls, people are tempted to purchase more commodities. On the other hand when price of any commodity rises people demand less quantity.
ASSUMPTIONS :-
While explaining the law we have stated that other things remaining the same these non-price factors are following :
1. CHANGE IN INCOME :-
There should be no change in income otherwise, rise in price will not cause the reduction in the quantity demanded.
2. CHANGES IN FASHION :-
As the fashion of any commodity changes its demand and price both falls. So the law of demand can not operate in this case.
3. CHANGE IN TASTE :-
Demand for commodity may change due to changes in tastes. For example, people develop a taste for milk. The demand for tea will decrease.
4. CHANGE IN WEATHER :-
Some time due to a sudden change of weather, this law cannot operate.
5. CHANGE IN POPULATION :-
In the population of the country increases, the demand of various goods will rise, even prices are increasing.
6. PRECIOUS AND CHEAP GOODS :-
Cheapest and costly goods demand remains constant. For example salt an diamond demand cannot change due to change in price.
7. INVENTION OF SUBSTITUTES :-
If the cheap and better substitute of any commodity is invented then the demand of that commodity can not rise with the fall in price.
8. CHANGE IN THE DISTRIBUTION OF WEALTH :-
If an equal distribution of wealth brought about in a country, then demand for expensive goods will fall and demand for basic necessities will increase.
9. CHANGES IN THE STATE OF TRADE :-
The total quantity of goods demanded is also affected by the cyclical fluctuations. So in that case this law can not operate.
10. FUTURE EXPECTATIONS :-
Sometimes, people expect that the price of a particular commodity will rise in near future. So they increase their purchases with the rise in price.
11. DEVALUATION EXPECTATION :-
If the people are expecting that currency will be devalued in the near future, then this law will not operate.
According to the law of demand there is inverse relationship between demand and price.
In simple language was can say that when the price of any commodity falls, people are tempted to purchase more commodities. On the other hand when price of any commodity rises people demand less quantity.
ASSUMPTIONS :-
While explaining the law we have stated that other things remaining the same these non-price factors are following :
1. CHANGE IN INCOME :-
There should be no change in income otherwise, rise in price will not cause the reduction in the quantity demanded.
2. CHANGES IN FASHION :-
As the fashion of any commodity changes its demand and price both falls. So the law of demand can not operate in this case.
3. CHANGE IN TASTE :-
Demand for commodity may change due to changes in tastes. For example, people develop a taste for milk. The demand for tea will decrease.
4. CHANGE IN WEATHER :-
Some time due to a sudden change of weather, this law cannot operate.
5. CHANGE IN POPULATION :-
In the population of the country increases, the demand of various goods will rise, even prices are increasing.
6. PRECIOUS AND CHEAP GOODS :-
Cheapest and costly goods demand remains constant. For example salt an diamond demand cannot change due to change in price.
7. INVENTION OF SUBSTITUTES :-
If the cheap and better substitute of any commodity is invented then the demand of that commodity can not rise with the fall in price.
8. CHANGE IN THE DISTRIBUTION OF WEALTH :-
If an equal distribution of wealth brought about in a country, then demand for expensive goods will fall and demand for basic necessities will increase.
9. CHANGES IN THE STATE OF TRADE :-
The total quantity of goods demanded is also affected by the cyclical fluctuations. So in that case this law can not operate.
10. FUTURE EXPECTATIONS :-
Sometimes, people expect that the price of a particular commodity will rise in near future. So they increase their purchases with the rise in price.
11. DEVALUATION EXPECTATION :-
If the people are expecting that currency will be devalued in the near future, then this law will not operate.
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