Law of Demand-Assumptions

Law of demand

The law of demand expresses a functional relationship between price and quantity demanded.When the price of good rises its demand falls and when the price of a commodity falls its demand increases.In words of Marshall a classical economist "The law of demand is the price and quantity demanded related to each other inversely at higher price lower will be demanded and at lower price higher will be demanded.           A

B

As can be seen in the demand schedule A,the price is rising and the demand is falling.At lowest price ie,5 the higher quantity ie,90 units of animals are demanded.

In demand schedule B, the price is continously falling and the demand for apple is continously increasing which shows that there is an inverse relation between demand of the commodity and its price.But law of demand is applicable only when its satisfies the following conditions these are called assumptions of law of demand.

1)Tastes and preferences of the consumer remains constant ie, tastes and preferences remains unchanged.

2)There should be no change in the income of the consumer.this is because the change in consumers income would result a change in quantity demand no matter what price is prevailing in the market.Let us suppose the income of consumer increases then demand  of commodity may also  increase even when price of the commodity rises. this will leave law of demand inapplicable therefore it is kept constant.

3)price of related goods doesn't change.the price of substute goods or complementary goods changes this would have direct impact on related goods. let us take an example of substitude goods lifeboy and dettol. if the price of lifeboy increases its demand will fall and the consumer will move to dettol and therefore the demand of dettol may increase.this will leave law of demand inapplicable therefore it is kept constant or unchanged.

4)Consumer do not expect any change in the price of commodity in near future.if consumer expects that the price of the product in future will fall then he will buy less of the product in present and may postpone his consumption.Now if he expects the there will b a rise in price of the commodity in near future he will consume more of that commodity in present and less in future.This also leaves law of demand inapplicable therefore it is assumed to remain unchanged.