Law of demand

In microeconomics, the law of demand is a fundamental principle that states that there is an inverse relationship between price and quantity demanded

1. What is Demand?
Demand in economics is the needs, wants & desire backed by
willingness and ability to buy at a given price in a given time
period.
Law of Demand

2. ●Among the many causal factors affecting demand,priceis the
most significant.
Definitions:
"Law of Demand states that people will buy more at lower prices and
buy less at higher prices, if other things remaining the same."- Prof.
Samuelson.
Thisphrasepointstowardscertainimportantassumptionsonwhichthis
lawisbasedthatisincome,taste,fashion,pricesofrelatedgoods,etc.
remain the same in a given period.

3. DEMAND CURVE AND SCHEDULE
(pictorial description of law of demand)
Andhencethegraphindicatestheinverserelationbetweenpriceand
demand. (Negative slope)
Prices of orangesQuantity demanded
for oranges
5 100
4 200
3 300
2 400
1 600

4. Table represents the increase in the price of the oranges lead to decrease
the demand for oranges.
EXCEPTIONS TO LAW OF DEMAND
Generally,theamountdemandedofgoodincreaseswithadecreasein
priceofthegoodandviceversa.Insomecases,however,thismaynot
be true.
GIFFEN GOODS

5. A good that is in greater demand as its price increases.
Forexample,ifthepriceofanessentialfoodstaple,suchaswheat,rises
itmaymeanthatconsumershavelessmoneytobuymoreexpensive
foodlikemeatandfish,andwheatbeingstillthecheapestfoodtheywill
be forced to consume more of it and hence buy it.
COMMODITIES WHICH ARE USED AS STATUS
SYMBOLS
●Someexpensivecommoditieslikediamonds,air-conditioned
cars, etc., are used as status symbols to display one’s wealth.
●Also known as a Veblen good.
●Herepeople'spreferenceforbuyingthemincreasesastheir
price increases, as greater price confers greater status.

6. EXPECTATION OF PRICE CHANGE IN
FUTURE
The consumer buys more of a commodity despite its increased
price in order to escape himself from the pinch of much higher
price in the future.]
Example- real estate investing

7. IGNORANCE
Oftenpeople are misconceived as high-priced commoditiesare better
than the low-priced commoditiesand rest their purchasedecision on
such a notion.
EMERGENCIES

8. During emergencies such as war, natural calamity- flood, drought,
earthquake, etc., the law of demand becomes ineffective.
In such situations,people often fear theshortage of the essentials
and hence demand more goods and services even at higher prices.
CHANGE IN FASHION AND TASTES &
PREFERENCES
The consumer tends to buy those commodities which are very
much ‘in’ in the market even at higher prices.
NECESSITIES
These are the essential goods which consumer buys irrespective of
an increase in the price.
For example: salt, toothpaste, food, clothing etc.

9. Bandwagon Effect
Here, the person tries to emulate the buying behavior and patterns
of the group to which he belongs irrespective of the price of the
commodity.
For example:if the majority of group members havesmart phones
then the consumer will also demand for the smartphone even if the
prices are high.

10. APPLICATIONS
UNDERSTANDING MARKET EQUILIBRIUM.
When there is a balance between supply and demand a market can be
said to have reached market equilibrium.
This is when resources are being used to their maximum efficiency.
1.Application on Farm Products
2. Price Control

11. 3. Black Market
4. Minimum Wage Legislation
5. Subsidy 
6. Profit maximization for business
Conclusion
1.Inverse relationship between price and demand.
2.Price is independent variable.
3.Demand is dependent variable on price of goods.
Refereces
http://www.economicsdiscussion.net/perfect-competition/demand-and-supply-analysis-top-7-applications/
18629
https://sites.google.com/site/economicsbasics/law-of-demand
http://www.economicsdiscussion.net/law-of-demand/the-law-of-demand-with-diagram/21903