The Law of Demand states that other things being equal, the quantity demanded increases with a fall in price and decreases with a rise in price. In other words, the quantity demanded of a good varies inversely with its price. In simple language, it means that a person will purchase more of a commodity when its price falls and less of it when its price rises. Therefore, the amount to be sold, the lower must be the price in order to attract purchasers. The greater the amount to be sold, the smaller must be the price at which it is offered so that it may find purchasers. In other words, “the amount demanded increases with a fall in price and diminishes with a rise in price.” The law of demand, thus, establishes a definite inverse relation between the price and the quantity demanded. This inverse relationship can be expressed as:
Qxd = f(Px)
Where Qxd = quantity demanded of good X and Px = price per unit of good X. the increase in quantity demanded may, however, not be in exact proportion to the fall in price. A fall of one- tenth in the price may increase the sales by a twentieth or it may just double them.
Other things being equal” is a very important qualifying phrase in the law. It stands for several assumptions. We assume that price of all commodities other than the market, the money at the disposal of the purchaser and his taste for the commodity, all remain constant. The law may not operate if, with a change in the price of this commodity, there is a change in anyone of there other things. An outbreak of war will cause the demand for increase in the price of ghee may not reduce its demand. Therefore, while stating the law of demand we always assume that other things remain the same.SUBMIT ASSIGNMENT NOW!