The Law Of Demand
The law of demand is a microeconomic law dealing with the increasing or decreasing price of a good and its subsequent change in quantity demanded. It states that all things being held equal, an increase in the price of a good will decrease its quantity demanded and vice-versa.
This will seem like common sense to many people, as the process of buying or choosing to not buy a good when its price changes happens to every consumer every day. You follow the law of demand and you may not have noticed it. For example, if steaks were to go on sale you may choose to buy two or three steaks instead of your usual amount of only one. Or if plane tickets were to go on sale, you are now more likely to fly in the near future.
As the price decreases from P1 to P2, the quantity
demanded by consumers increases from Q1 to Q2 |
Changes in Demand are represented by new demand curves, a decrease in demand is shown as Dd, and an increase in demand is shown as Di
|
Change in demand is when an event causes the consumer to think differently about the product which influences their buying habits (example: Oprah calls out red meat on her show and the demand for beef falls). A change in demand is represented as a new demand curve on a S&D graph.
Change in quantity demanded is a change in demand by the consumer directly effected by a change in price of the product (example: The price of beef falls therefore quantity demanded rises and vice versa) A change in quantity demanded is represented by a movement along the same demand curve. Click on the following link to test yourself: http://economics.about.com/od/demand/ss/10_questions_4.htm References: Law Of Demand Definition | Investopedia (Investopedia) http://www.investopedia.com/terms/l/lawofdemand.asp Law of demand (Wikipedia) http://en.wikipedia.org/wiki/Law_of_demand Economics Online (Demand curves) http://www.economicsonline.co.uk/Competitive_markets/Demand_curves.html The following is a video explaining the concept further: |