Economics for Common People – Part 4 The Law of Demand
1️⃣ What Is the Law of Demand?
The Law of Demand states:
When the price of a product falls, demand increases. When the price rises, demand decreases.
This happens while keeping other factors constant.
2️⃣ Why Does Demand Fall When Price Rises?
There are two main reasons:
- Income Effect – When price rises, purchasing power decreases.
- Substitution Effect – Consumers shift to cheaper alternatives.
For example:
If the price of tea increases, some people may switch to coffee.
3️⃣ Demand Curve
The demand curve shows the relationship between price and quantity demanded.
It usually slopes downward from left to right.
This downward slope shows the inverse relationship between price and demand.
4️⃣ Assumptions of the Law of Demand
The law works under certain conditions:
- Income remains constant
- No change in taste and preferences
- No change in population
- No change in prices of related goods
If these factors change, demand may shift.
5️⃣ Exceptions to the Law of Demand
Sometimes the law does not apply.
- Giffen goods
- Luxury goods
- Speculative goods
For example:
If people expect gold prices to rise further, they may buy more even when prices increase.
Price and demand move in opposite directions. This simple principle shapes market behavior.
— Shaktimatha Learning
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