“Demand is a quantity of good (and services) which an individual is willing to purchase at a certain price level during a specific time period”.
Law of demand is a very crucial concept in micro economics that has been defined as follows:
Law of Demand:
In this law functional relationship between price and quantity demanded can be described.
“Other things remain same, the demand of a good will fall due to the increase in price and will increase due the fall in price”.
As shown in the table the demand of a good is continuously increasing within the fall of the price and if we read from below continuous decrease in the demand of the good will be observed.
Few assumptions which we must have to make are given as follows:
No Change in Consumer’s income:
To prove this law, the income of the consumer should not change.
No Discovery of New Substitute:
There should be no discovery of new substitutes of that good. It can affect the demand of the good.
No Change in Number of Consumers:
The number of the consumers must remain constant. Otherwise increase in number of consumers will increase the demand without decreasing the price of good.
No Change in Custom, Fashion, Taste, Habits:
Season, fashion, habits and taste must remain constant. Otherwise they can affect the demand of the good.
Homogeneity of all the units:
The most important assumption for law of demand is that all the commodities should be equal in quantity as well as in quality.
No Change in Price of Substitute:
There should be no change in the price of present substitutes of the good or product.
Following are the limitations for law of demand:
Those goods whose demand increases with the increase in its price and vice versa are called Giffen goods. For example: consider that barley is an inferior good with respect to wheat. Then decrease in the price of barley will discourage its demand.
The fear of a consumer for the shortage of certain good in future may cause him/her to purchase the good even its price is raising.
In case of any emergency the consumer will not pay attention to the price level of the good which may cause him/her to purchase the good even it is very expensive.
The ignorance or lack of interest of a customer in a certain good will neglect this law.