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Law of demand; it's assumptions and limitations with suitable diagram;


  

Introduction

In this chapter we discuss about demand and it's related concepts that is law of demand, factor affecting demand, it's limitations etc.with suitable diagram.

Definition:

“Demand means desire for a commodity, willingness to pay and ability to pay”.


Factors affecting demand:

  1. Price of the commodity

  2. Price of related goods.

  3. Income of the consumer.

  4. Test and preference of the consumer.

  5. Population.

  6. Weather conditions.

  7. Future expectations.

  8. Taxation.

  9. Income distribution.

  10. Other factors:

  • Innovation and discoveries.

  • War.

  • Natural disasters.


  


 Law of demand   Law of demand is an important law in the theory of consumption.

Definition

 

“Other things remain constant when price increases quantity demand decreases and vice versa”.

“With ceteris paribus (other things remain constant)when price increases, quality demand decreases and vice-versa”.


Assumptions

  1. Income of the consumer constant.

  2. Price of related goods is constant.

  3. Weather conditions remain constant.

  4. Test and preference of the consumer constant.

  5. Future expectations remain constant.

  6. Population remains constant.

  7. Taxation remains constant.

  8. Income distribution remains constant.

  9. Other factors remain constant.



Table 




Diagram 




Explanation 


DD demand curve slopes downward from left to right due to the inverse relationship between price and quantity demand.


Limitations of law of demand 


Giffen goods: In case of Giffen goods law of demand can not operate.Ex:salt and match box.


Prestige goods/ Veblen goods:

 Ex:Diamond.


Highly essential goods:

Ex: Medicines.


Conclusion


In this way we discuss about the law of demand, it's assumptions and it's limitations.









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