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Law of Demand - shalini mittal - 02-25-2015

Law of Demand


Other things being same, there is an inverse relationship between price and quantity demanded. Here other things means determinants of demand except price. 



 Assumptions of the Law of Demand


Law of demand holds good when “other things remain the same”.  The main assumptions of the law are as follows :
(1)         Tastes and preferences of the consumers remain constant.
(2)         There is no change in the income of the consumer
(3)         Prices of the related goods do not change.
(4)         Consumers do not expect any change in the price of the commodity in the near future.

RE: Law of Demand - sumit patni - 02-25-2015

Exceptions to the Law of Demand.


1.  Prestige/Conspicuous Goods: More expensive goods are highly demanded by the richer persons to build prestige in the society. 

2. Giffen Goods: Those goods which are inferior and which occupy a substantial place in consumer's budget are called "giffen goods". The price effect of Giffen goods is positive and income effect is negative. . The demand for giffen goods  increases with the rise in its price and decreases with the fall in its price examples of such goods are coarse grain, course cotton cloth etc. 

3.   Possible rise in future prices: If there is a possibility of rise in price of a particular commodity in future, more quantity of it is purchased by buyers. Like in share market.

4.  Change in Fashion : If a particular commodity is in fashion. More quantity of it is demanded even at increased price and vice-versa.
5. Necessary goods: Demand of necessary goods are not affected by prices. Like medicine, salt, match box etc.
6.   Emergency: In emergency situations like war, riot etc. people demand more quantity of wheat, vegetables etc. even at higher prices.
7.   Ignorance: Generally consumer thinks that expensive commodities are of better quality. So, they choose those commodities which have higher prices. Like cosmetic goods.  
8. Speculation