State and explain 'law of demand' with assumptions in detail
The law of demand states that the demand for a product
decreases with increase in its price and vice versa; while other factors is at
constant.
Therefore, there is an inverse relationship between the
price and quantity demanded of a product.
Assumptions in Law of Demand:
The law of demand studies the change in demand with relation
to change in price. In other words, the main assumption of law of demand is
that it studies the effect of price on demand of a product, while keeping other
determinants of demand at constant.
However there are certain assumptions underlying the law
of demand, which are as follows:
i. Assumes that the consumer’s income remains same. If the
income of an individual increases, the demand for products by him/her also
increases, which is against the law of demand. Therefore, the income of
consumer should not change.
ii. Assumes that the preferences of consumer remain same.
iii. Considers that the fashion does not show any changes,
because if fashion changes, then people would not purchase the products that
are out of fashion.
iv. Assumes that there would be no change in the age
structure, size, and sex ratio of population. This is because if population
size increases, then the number of buyers increases, which, in turn, affect the
demand for a product directly.
v. Restricts the innovation and new varieties of products in
the market, which can affect the demand for the existing product.
vi. Restricts changes in the distribution of income.
The law of demand states that the demand for a product decreases with increase in its price and vice versa; while other factors is at constant.
Therefore, there is an inverse relationship between the price and quantity demanded of a product.
Assumptions in Law of Demand:
The law of demand studies the change in demand with relation to change in price. In other words, the main assumption of law of demand is that it studies the effect of price on demand of a product, while keeping other determinants of demand at constant.
However there are certain assumptions underlying the law of demand, which are as follows:
i. Assumes that the consumer’s income remains same. If the income of an individual increases, the demand for products by him/her also increases, which is against the law of demand. Therefore, the income of consumer should not change.
ii. Assumes that the preferences of consumer remain same.
iii. Considers that the fashion does not show any changes, because if fashion changes, then people would not purchase the products that are out of fashion.
iv. Assumes that there would be no change in the age structure, size, and sex ratio of population. This is because if population size increases, then the number of buyers increases, which, in turn, affect the demand for a product directly.
v. Restricts the innovation and new varieties of products in the market, which can affect the demand for the existing product.
vi. Restricts changes in the distribution of income.
