The Law Of Demand

Law of Demand

Statement of law:

  The law of demand states that the other things remaining equal, the quantity demanded of a commodity increases when its price falls and decreases when its price rises.

Thus the law of demand indicates an inverse relationship between the price and quantity demanded of a commodity. That is  with a rise in price demand will fall and with a fall in price demand will rise.

Assumptions of law of demand:

The law of demand is based on following assumptions:

1. There should be no change in the income of consumer.
2. There should be no change in the tastes and preferences of the consumer.
3. Prices of related commodities should remain unchanged.
4. Size of population should not change.
5. The distribution of income should not change.
6. The commodity should be a normal commodity.

The law of demand can be illustrated numerically through a 'Demand Schedule' and graphically through a 'Demand Curve'.

Demand Schedule:

It is tabular statement that shows different quantities of a commodity that would be demanded at different prices.
Demand schedule is of two types, viz. (1) Individual demand schedule, and (2) Market demand schedule.

  (1) Individual Demand Schedule:  Individual demand schedule is the table which shows various quantities of a commodity that would be purchased at different prices by a household.
For Example:

Individual demand for a product

  (2) Market Demand Schedule: Market demand schedule is a table which shows various quantities of a commodity that all the buyers (consumers) will purchase at different prices during a given period.

Market Demand Schedule for oranges

Demand Curve and its Derivation:

Demand curve is a graphic presentation of the law of demand.

We can convert the demand schedule into a demand curve by plotting the various price-quantity combinations graphically.

The picturization of the demand schedule is called the 'Demand curve'. It is the curve showing different quantities demanded at various alternative  prices during a given period.

Demand curves are of two types, viz.  (1) Individual Demand curve,  (2) Market Demand curve.

  (1) Individual Demand curve: Individual Demand curve for a good  is the curve that shows different quantities of the good which a consumer is willing to buy at different prices during a given period of time.

                                                             Individual demand Curve

  (2) Market Demand curve: Market Demand curve is a graphic representation of graphic schedule. It is a curve that represents different quantities of goods which all consumers in the market are willing to buy at different prices during a specified period.
It is the horizontal summation of the demand curves of all households.

                                                              Market Demand Curve