Law of demand

In Microeconomics, the law of demand states that, "conditional on all else being equal, as the price of a good increases (↑), quantity demanded decreases (↓); conversely, as the price of a good decreases (↓), quantity demanded increases (↑)". In other words, the law of demand describes an Inverse Relationship between price and quantity demanded of a good. Alternatively, other things being constant, quantity demanded of a commodity is inversely related to the price of the commodity.


Assumptions of the Law of Demand:


(i) There is no change in the tastes and preferences of the consumer;

(ii) The income of the consumer remains constant;

(iii) There is no change in customs;

(iv) There should not be any substitutes of the commodity;

(v) There should not be any change in the prices of other products;

(vi) There should not be any possibility of change in the price of the product being used;



Exceptions to the law of demand :


Generally the amount demanded of a good increases with a decrease in price of the good and vice versa. In some cases, however, this may not be true. There are certain goods which do not follow this law. These include [Veblen goods ,Giffen goods] and expectations of future price changes.

1.Giffen goods : Economists disagree on the existence of giffen goods in the market.  A Giffen goods may be defined as those goods whose price effect is POSITIVE and income effect is NEGATIVE . In other words, giffen goods describes an Inferior good that as the price increases, demand for the product increases. All Giffen goods are Inferior goods, but All Inferior goods are not Giffen goods.


2. Ignorance Effect : Consumers buy more at a higher price under the influence of the “igno­rance effect”, where a commodity may be mistaken for some other commodity, due to deceptive packing, label, etc.

3. Necessities of Life : Normally, the law of demand does not apply on necessities of life such as food, cloth etc. Even the price of these goods increases, the consumer does not reduce their demand. Rather, he purchases them even the prices of these goods increase often by reducing the demand for comfortable goods. This is also a reason that the demand curve slopes upwards to the right.