1- L aw of demand
Demand for products and service is impacted by various elements like the price of the products and service, earnings of buyer, taste, habit and liking of purchaser, price of related products and so on. If there is a variation in any of these elements, the demand for a product or service also modifies. When all these elements, leaving the price alone, are constant, an ascent in the price of a product, causes a reduction in its demand and a fall in the price its demand expands. It reveals that there is a converse connection between the price and demand for a good or service. Such a converse connection between the two factors is made sense of by law of demand. Thus, the law of financial matters that expresses the contrary connection between the price and demand for a product or service is known as law of demand.
Law of demand depends on the accompanying exceptions.
1-There is no alteration of income of the shopper/purchaser.
2-There is no alteration in habit, taste and liking of shopper.
3-There is no alteration in the price of related products.
4-There is no assumption to change in the price of the product in future.
5-The size of populace, season and custom shouldn't change.
6-The merchandise ought to be typical.
Law of demand can be expressed by the assistance of the accompanying demand table and chart.
Demand Table
|
Unit price of
good-X in ＄
|
2 |
4 |
6 |
8 |
|
Qnt. demanded of
good-X
|
4 |
3 |
2 |
1 |
In the demand table stated above, different prices of good-X are seen in the first row and the amount of good-X demanded at each given price is seen in the second row. As given the assumptions, the demand table reveals that at per unit price, equal to ＄2, demand for good-X is 4 units. when the price ascent from ＄2 to ＄4, ＄6 and＄8, demand for good-X declines to 3, 2 and 1 units. It's obvious that the ascent in price makes a tumble in demand for good-X. Thus, given the assumptions, the demand schedule is indicating that there is a negative relationship between the price and demand for good-X.
The figure given in the demand table can be shown by the diagram as underneath.
This is how law of demand states the opposite connection between the price of a product and the amount of it demanded, being all the demand stimulating elements, leaving the price alone, constant.
2- Why demand line slopes down to rightward
While investigating law of demand, it revealed that the demand line is inversely sloping down rightward. There are some specific reasons for sloping a demand curve down to rightward. These reasons have been explained as underneath.
2.1- Income Effect
One cause for why a demand line slopes down to the rightward is income effect. Income effect can be elucidated as an impact that falls on demand for a product as a result of variation in income of a purchaser. The purchaser's real income varies with an uplift or fall down in the price of products. When the price drops, a product turns to be relatively low priced and the purchaser can shop a greater amount of it and with a spring up in the price, he/she can purchase only a small amount of it. This is why there is a negative relationship between the price and demand and the negative relationship causes a demand line slope downward.
2.2- Substitution Effect
Demand for a product is greatly impacted as a result of variation in the price of its substitutable product. The impact that raid on demand for a product because of the alteration in the price of its substitutable product is known as substitution effect. For example, when the price of a cold drink, Pepsi drops, in comparison it is low-priced than its substitutable drink, Fanta and the purchasers of Fanta switch to demand for Pepsi. Consequently, there is an ascent in demand for Pepsi because of substitution effect. Such an impact maintains inverse connection between the price and the amount of product demanded and the demand line slopes down to rightward.
2.3- Number of purchasers
The number of purchasers for a product expand when there is a decline in the price of the product they purchase. The reaction goes in that direction because the low income group of purchasers also afford to pay for the product and consequently, the demand for the products ascends. Conversely, with a hike in the price, its the demand drops because most of the purchasers can not afford to pay for the product. Thusly, demand for a product and its price inversely connected to each other and the demand line slopes down to rightward.
2.4- Multiple use of a product
There are different sorts of products and some sorts of them can be put to multiple uses. When the price of multiple-uses types of product drops, its demand soars up because the purchasers demand a higher amount of them for multiple-uses and they cut in their uses when the price goes up. This is how an inverse connection between the price and demand for the product occurs. This is why demand line tends to slope down to the rightward.
3- Exceptions of Law of Demand
Law of demand establishes an opposite connection between the price and demand for a product. However, it is not exactly true every circumstances. In some situations, the price of a product and its demand is seen positively connected and the demand line is also sloping up o the rightward. It means the law of demand fails to work according to its norms because it does not meet the criteria for its application. Hence, the obstacles that make law of demand fail to operate are the exceptions of the law of demand. Some of the exceptions of law of demand have been explained as follows.
3.1- Unawareness of purchaser
One of the exceptions of law of demand is the unawareness of a purchaser. When the purchaser is unware about he variation in the price of a product, possibly he can demand even more amount of the product at its higher price. In the similar manner, he can demand a small amount of the product at its lower price because of his unawareness to the variation in the price of product. In such a circumstances, law of demand does not operate according to its norms.
3.2- Unusual Situation
When there is an unusual situation like strikes, war, brutality etc. law of demand does not work rightly because in such circumstances, the purchasers start hoarding products with no downward trend in the price. Therefore, the demand for essential products instantly springs up in such an unusual situation with no fall in price and law of demand does not operate according to its norms.
3.3- Geffen products
There are some inferior products characterized as inverse income effect and they are known as Geffen products. When the price of a Geffen products falls, its demand also falls and with the rise in its price, demand for it also goes up. Hence law of demand does not work in case of Geffen products.
3.4- Distinct products
On the buyer's perceptions, some products are distinct products and they demand more with a rise in their price. They react in such a way for some products, because they wants to show up themselves distinct in their society by demanding and consuming distinct products. In such a case, demand for such a distinct products rises with an increase in the price and it will revert on its opposite situation. Thus law of demand does not apply perfectly.
3.5- Depression
When there is depression in the economy, a large segment of populace lose jobs and unable to make required amount income for their daily requisites. In such a circumstances, the purchasers demand only a small small of highly essential products even if there is a decline in the prices of the products. So law of demand in times of depression is not completely applicable.
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