Law of Demand

The amount of a product that a purchaser will purchase and can manage, given costs of merchandise and customer’s preferences and inclinations, is called interest for the ware.

Whenever one or more of these variables change, the quantity of the goods chosen by the consumer is likely to change as well. 

Demand Curve and the Law of Demand: 

• The demand curve is a relation between the number of goods chosen by a consumer and the price of the goods. It shows the quantity demanded by the consumer at each price
• Therefore, as the price rises, demand falls, and as the price falls, demand rises. The law of demand, in conjunction with the law of supply, is used to determine an efficient resource allocation as well as the optimal amount and price of goods
• The consumer preference theory aids in understanding the combination of goods that a consumer may want while taking into account budgetary limits and market prices
• The greatest explanation for this can be found in microeconomics, where demand functions are formed from indifference curves

Merchandise can be additionally characterized into:

Inferior Goods

For Items like low-quality food, coarse cereals, etc., the demand for them decreases as the income of the consumer increases due to now attained better affordability. Demand for Inferior Good moves in the opposite direction of the income of the consumer.

Giffen Goods

It refers to a good that people consume more of as the price rises. The interest for such descent can be conversely or emphatically identified with its cost. If the good can easily be substituted, then the demand would remain inversely related. However, in a scenario where substitution cannot work in line with income change, the demand for such a good would be positively related to its price.

Complementary Goods

These are those goods which are used together, in complement to each other like Tea and Sugar. Here, the demand for a good move in the opposite direction of the price of its complementary goods. The increase in the price of tea may reduce the demand for sugar as well.

The elasticity of demand: 

The elasticity of demand refers to the responsiveness of a commodity’s amount demanded to changes in one of the variables on which demand is dependent. In other words, it is the percentage change in quantity demanded divided by the percentage change in one of the variables influencing demand.

The following factors can influence demand:

• The commodity’s price
• Income of consumers
• Price changes in associated commodities

Types of Elasticity of Demand

• Price Elasticity

The price elasticity of demand is defined by the reaction of the quantity demanded to a change in a commodity’s price.

• Income Flexibility

The income elasticity of demand is defined as the degree to which the amount demanded responds to changes in the consumer’s income.

• Cross Elasticity

The cross elasticity of demand of a commodity X for another commodity Y is the change in demand of commodity X caused by a change in commodity Y’s price.

Conclusion

The Law of demand highlights the issue of demand and supply. It demonstrates how the value of different products changes depending on the demand from the consumers. The spending power of the consumer also adds to the factor of the law of demand. It also showcases some exceptions to certain products which defeat the fundamentals of the law of demand.