The Law of Demand is one of the main pillars of basic economics and wihout understanding it, the understanding of the nuances of the subject will be very difficult.
The Law of Demand states that - Ceteris Paribus (all other factors remaining the same), the quantity of goods demanded in the market is inversely proportional to its cost.
Hence, if all other factors that impact sales remain the same, then an increase in cost will cause the demand of a product to decrease and vice-versa.
This can be very easily explained with the curve given below -
[pic]
The diagram in itself is self-explanatory. It shows two points on the Demand Curve (Grey Line) which have been plotted depending on the prevalent market price of the product. And, the equivalent level in sales is also visible.
One can clearly see that when the price is lower, the quantity demanded is higher, and when the price is hiked, the quantity demanded goes down.
The Law of Demand and the demand curve are governed by many factors which include, but are not restricted to -
• The monetary condition
• The nature of goodsExpectations
• Distribution of Income
• The macroeconomic circumstances
Now, there are many exceptions to this rule, more so in the modern world where a lot of new tangible and intangible factors have crept into the equations. Some of the notable Exceptions to the Law of Demand are -
• Giffen Goods
• Status Symbols
• Basic necessities
Another important term that one needs to remember in relation to Demand is the Price E ...