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Demand: Meaning, Law and Determinants

Law of Demand Meaning The Law of Demand states that other things remaining the same (ceteris paribus), quantity demanded of a commodity increases when its price falls and decreases when its price rises. This shows an inverse relationship between price and quantity demanded. Statement “Other things remaining constant, demand for a commodity varies inversely with its price.” Example If the price of apples falls from ₹100 to ₹80 per kg, consumers will buy more apples. If the price rises to ₹120 per kg, demand will fall. Demand Curve The demand curve slopes downward from left to right, showing the inverse relationship between price and quantity demanded. Assumptions of the Law of Demand Income of consumers remains constant Tastes and preferences do not change Prices of related goods remain constant No expectation of future price changes Population remains constant Determinants of Demand Determinants of demand are the factors that influence the quantity demanded of a commodity. 1. Price of the Commodity Price ↓ → Demand ↑ Price ↑ → Demand ↓ 2. Income of the Consumer Normal goods: Income ↑ → Demand ↑ Inferior goods: Income ↑ → Demand ↓ 3. Prices of Related Goods Substitute goods (tea & coffee): Price of one ↑ → Demand for the other ↑ Complementary goods (car & petrol): Price of one ↑ → Demand for the other ↓ 4. Tastes and Preferences Favorable change in taste increases demand; unfavorable change reduces demand. 5. Size of Population Increase in population leads to increase in demand. 6. Expectations about Future Prices If prices are expected to rise in future, present demand increases. 7. Distribution of Income Equal distribution of income generally increases demand for necessities. 8. Advertisement Effective advertising increases demand by influencing consumer preferences. Conclusion The law of demand explains consumer behavior in relation to price, while determinants of demand explain why demand changes even when price remains constant.