subscribe: Posts | Comments

Law of Demand

0 comments

When you talk about demand, what comes to mind first is markets. A market is the platform that brings together buyers of different sorts and sellers of different sorts. They are the demanders and the suppliers in any situation that involves a potential exchange of goods and cash. The corner gas station an e-commerce site. The local music store, a farmer’s roadside stand these are all markets familiar to us all.

Now, let’s go on to examine what demand is? Demand is a schedule or curve that shows the quantities of a product that are purchased at various possible prices, other things equal. It shows you the pattern that a consumer follows when he is willing and able to purchase various amounts have a product, at each have a series a possible prices during a specified period of time.

Let’s consider this hypothetical demand schedule for a single consumer, purchasing bushels of corn. This table shows how the various prices corn and the quantity of corn a particular consumer would be willing and able to purchase at each to these prices are related. At five dollars per bushel of the consumer is willing and able to buy 10 bushels per week. But it four dollars the consumer is willing and able to buy as many as twenty bushels per week and so forth.

Thus demand is simply a statement of a buyer’s intentions with respect to the purchase a product. Let’s represent the relationship between the price of corn and individuals demand for this corn on a simple graph. Let’s measure quantity demanded on the horizontal axis and price on the vertical axis. Let’s plug connector five price quality data points listed in the table with the smooth curve, labeled D. This curve is what we call demand curve, its downward slope reflection inverse relationship that economists call the law of demand. So, what we understand is that other things equal consumers will buy more products as its price declines and less if it has its price rises.

Having come to this conclusion we must now ask ourselves another question. Why is there an inverse relationship between price and quantity demanded? Actually the law of demand is consistent with common sense. People do tend to buy more of something when it is priced low rather than when it is priced high. That is why, there is always a rush in clearance sales. It is ample evidence that the law of demand.

Buying depends on one more thing and that is utility, it is been noted that in any specific time period. A buyer derives less satisfaction from each successive unit that the product that he consumes. This satisfaction can be termed marginal utility because successive units yield less and less marginal utility. He will buy additional units, if only the price for those units is progressively reduced.

We see, therefore that consumption is subject to diminishing marginal utility. For example, a decline in the price a chicken will increase the purchasing power consumer incomes, enabling people to buy more chicken. This is the income affect the price decline has on demand. At a lower price chicken is relatively more attractive and consumers tend to substitute it for pork, lamb, beef and fish. This is the substitution effect the price decline has and demand. Income and substitution effects combine to make consumers able and willing to buy more products at a low price that have a high price. It does becomes clear how price and quantity demanded are inversely related.

Comments are closed.