Law of demand and assumption of demand

Law of demand

The law of demand states that " other things being constant the higher the price of the commodity,  smaller is the quantity demanded and lower the price of the commodity larger is the quantity demanded . The law of demand has been explained by Alfred Marshall in his book ' Principles of economics '. 
The law of demand explains change in the behaviour of consumer demand due to various changes in price. Marshall's Law Of demand describes functional relation between demand and It can be expressed as D= f (P) that is demand price.function of price. The relation between price and demand is inverse, because larger quantity is demanded when price falls and smaller quantity will be demanded when price rises.

Key points:- 

● The law demand says higher the quantity demand of commodity then lower will be the price. 

● demand and price have inverse relationship. 

● law of demand explained by Alfred Marshall in his book " principle of economics ".


 Why demand curve slopes downwards from left to right? 

The reasons for downward slopping demand curve are as follows:
1.The law of diminishing marginal utility: We have seen that marginal utility goes on diminishing with increasing stock of a commodity. Therefore, a consumer tends to buy more when price falls 
2.Income effect: When price falls, power of a consumer rises, which enables him to buy more of that commodity whose price falls. This is income effect.
3.Substitution effect: In case of substitute goods, when price of a commodity rises, its substitute 'become relatively cheaper. Therefore, a consumer will purchase more of that commodity.
4.Multipurpose uses: When a commodity can be used for satisfying several needs, its demand wi rise with a fall in is price and fall with a rise in its price.


 Assumptions of the Law of Demand

The law of demand is based on following assumptions.
1.Size and composition of population remains constant: There shouldn't be any  change in the size and composition of population. Because a change in population will bring about a changein demand even if price remains the same. 
2.Income of the consumer remains constant: Income of consumer should remain constant lf there is any change in income, demand tends to change even though price is constant or example, if income increases people will demand more quantity of a commodity even at a higher price. 
3.Tastes and habits remain constant: Taste, habit, custom, tradition and fashion etc. should remain unchanged due to changes in taste and preference, people's demand forgoods undergoes a change.
4.No change in expectations about future price changes :- There should not be any changes  in  the  expectations about the prices of goods in future. If consumers expect (that price will rise or fall in future. they will change (their present demand though price is constant.
5. Prices or substitutes and complementary goods rernain constant: The prices of substitute and complejnentary goods shoUJd rernain constant. For instance, if price of tea rises, its demand will fall but demand for coffee will increase.
6.Government Policy remains constant: Taxation and fiscal policy of government s ould not change A change in income tax, for instance, may cause changes in consumer's. disposable income and hence demand.




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