Definition of Law of demand
Law of demand is essential microeconomics law. This law expresses that when the cost of products and service increase. the demand for that specific good and services declines and vice versa. while keeping other factors constant (ceteris paribus). This law defines that a higher price leads to a lower quantity demanded. And lower price leads to a higher quantity demanded. which means quantity demand has an inverse relationship with price.
Brief Explanation of Law of demand
Wants and desires are unlimited. People having wishes or desires for different goods and services. Demand reflects a decision about which wants to satisfy. Demand based on personal needs and wants .economist defines demand as something which consumer willing to purchase. A consumer can afford that thing and have a definite plan to buy it. If he cannot afford or pay for that thing then he doesn’t have effective demand. The demand refers to the relationship between the good’s price and quantity demanded of that good. A price is what buyer pay to purchase any specific good and service. Law of demand explains the behavior of buyers when prices of any good increase or decrease. For instance, when the price of surf decreases you might buy more surf at same old prices. The quantity you demand increase because the price has fallen. Inversely when the price goes up people limit their demand for example, when the price of petrol increase. people switch to public transport or try to control their consumption. Economist calls this inverse relationship the law of demand. This is one of the fundamental laws of microeconomics which always work with law of supply.
The law of demand results from
- Substitution effect
The substitution effects show when the relative price of a good and service rises. The consumers will switch from more expensive items to less costly alternatives.
- Income effect
The income effect portrays the change in individual income and shows how this change impact in quantity demanded.