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Law of Demand

Law of Demand
The law of demand defines one of the most important relationships in economics. The relationship between demand and pricing is of a deep interest for economists. Here's more...
Yash Gode
Economics is a study that deals with the production, distribution, and consumption of goods and services. Here, the study of pattern of demand and supply, and the relationship of both with the prices becomes very important. One very crucial principle of economics is the one that describes the relationship between demand, supply, and prices of a commodity or a service, and is known as the law of demand.

Law of Demand Concept

Statement: 'All other factors being constant, a rise in price for a good or a service will result in drop in demand of that commodity and vice versa.'

Similarly, when there is drop in its prices, the demand for a good or service rises. Many economists interpret the law of demand in a different sense. Economists also bring in the aspect of supply and relate it to the costs, and call it the law of demand and supply. This law lays down a very simple relation that works similar to the relationship described in the law of demand, but in a different direction. The law states that if the price of a product or a service rises, there is a corresponding rise in its supply.

Now take a close look at the graph shown. Relating it to the definitions above, you can easily understand the graphical representation of this law, which is known as the law of demand curve, or simply the demand curve.


For better understanding, nothing better than a practical, real-life example. Let's consider the delicious pizza, for instance. You, as a consumer, will obviously purchase more number of pizzas if there is a fall in prices. Now, consider the opposite, which is equally true. If there is a rise in the price of pizzas, a consumer will try to cut down on his expenses by eating less pizzas.

Price of a Pizza Quantity Purchased
$2.00 10
$2.25 9
$2.50 7
$2.75 5
$3.00 4

As a consumer, you might clearly correlate with the fact illustrated in the table presented above. You can clearly see how the price demand pattern follows the law of demand curve.


Even though the law of demand holds good in most cases, there are a few exceptional cases when it does not hold true. Here are some of these exceptions.

Giffen Goods: These types of commodities include extremely necessary items, without which a consumer cannot sustain normal living. For example, staple food items like potatoes, bajra, barley, etc., which are consumed mostly by poorer families, do not follow this law. If there is rise in the price of these, a poor household has no option but to continue purchasing them. This results in no drop in demand, and hence, this case is an exception.

Natural Disaster: This is a special condition, in which the consumer value of necessary goods like staple food items, water, medicines, etc., do not follow the law of demand. During floods, hurricanes, earthquakes, etc., even goods with high prices have high demand, as people just cannot do without these goods in troubled conditions.

Goods of Status Symbol: There are some commodities or services which are considered a sign of elevated status by those who possess them. For example, air-conditioned cars, jewelry, etc., are some commodities which are used to showcase one's wealth.

Anticipating Price Rise: If the price of a commodity is already high, and a household expects another price rise in the near future, they may decide to stock it up and increase the buying of this good at the current high price, which makes up for another exception in case of this law.

Rise in Income: If a price rise is accompanied by a rise in income, a household may not mind buying the same product for a heightened rate. This again violates the law of demand, as the quantity does not change despite a rise in price.

This is one of the most important but easy-to-digest concept in economic studies, and a proper understanding can prove handy in managing your household budget.