Law of Demand
Demand is the willingness and ability of consumers to purchase a certain quantity of goods or services at a given price within a specified period.
Factors influencing demand include price, income, tastes and preferences, price of related goods, and consumer expectations.
The law of demand states that, ceteris paribus, as the price of a good or service increases, the quantity demanded decreases, and vice versa.
The demand curve illustrates the law of demand, sloping downward from left to right.
Changes in demand can be represented by shifts in the demand curve, caused by changes in the factors influencing demand.
Price elasticity of demand measures the responsiveness of quantity demanded to a change in price.
Demand elasticity helps determine how sensitive consumers are to price changes and is classified as elastic, inelastic, or unitary.
Elastic demand indicates that quantity demanded is highly responsive to price changes, while inelastic demand shows low responsiveness.
Unitary demand implies that the proportionate change in quantity demanded is equal to the change in price.
Substitution effect and income effect are two important concepts related to the law of demand.
The substitution effect occurs when consumers switch to alternative products due to a change in relative prices.
The income effect refers to the change in quantity demanded resulting from a change in purchasing power due to price changes.
The law of demand applies to both individual consumers and the market as a whole.
Understanding the law of demand helps businesses and policymakers make informed decisions regarding pricing, production, and consumer behavior.
