LAW OF DEMAND Meaning : The law of demand explains the relationships between price and quantity demanded. It may be stated as follows : “Other things being equal, if the price of a commodity falls, the quantity demanded of it will rise and if the price of a commodity rises, its quantity demanded will decline.”Thus, there is an inverse relationship between price and quantity demanded, other things being same.

Assumptions of the Law of Demand  There should be no change in the income of the consumers.  There should be no change in the tastes and preferences of the consumers.  Price of the related commodities should remain unchanged

The commodity in question should be a normal one. There should be no change in the size of population. The distribution of income and wealth should be equal. There should be continuous demand except in case of indivisible commodities. There should be perfect competition in the market.

Demand Schedule A demand schedule is a tabular statement which shows different quantities of a product demanded at various prices. Demand schedule of a Household Price per Unit ( Rs.) Quantity Demanded ( Units ) A510 B415 C320 D235 E160

Demand Curve A demand curve reflects graphically the relationship between the quantity demanded of a commodity and its price. Diagram

DIAGRAM Y D Y PRICE Y1 D OQ Q1 X DEMAND

Market Demand Schedule By adding up horizontally, the demand schedule of all households, we will arrive at the market demand schedule. This is also known as the industry demand schedule. Suppose there are three buyers of the commodity, namely, A, B and C in the market and have different patterns of demand at different prices as shown in Table below:

Market Demand Schedule Price (Rs.) Quantity Demanded By A B C Total Market Demand (Units)

Market Demand Curve The market demand curve, like individual demand curve, slopes downwards to the right because it is nothing but lateral summation of individual demand curves. Besides, as the price of the good falls, it is very likely that new buyers will enter the market which will further raise the quantity demanded of the goods.

DIAGRAM Y D Y MARKET Y1 PRICE D OQ Q1 X MARKET DEMAND

RATIONALE OF THE LAW OF DEMAND or Reasons of Demand Curve Slopping Downward Law of Diminishing Marginal Utility. Income Effect. Substitution Effect. Additional Consumers. Different Uses of Commodity.

Exceptions of the Law of Demand 1)Conspicuous Necessities. 2)Inferior or Giffin Good 3)Indifferent Goods 4)Future Expectations 5)Change in Fashion & Tastes 6)Status Symbol 7)Lack of Information 8)Emergent Situation 9)Characteristics of Consumers

GIFFIN PARADOX Meaning: Example : Diagram

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