Law Of Demand
The law of demand is one of the most fundamental concepts in economics. It works with the law of supply to explain how market economies allocate resources and determine the prices of goods and services that we observe in everyday transactions.The law of demand states that the quantity purchased varies inversely with price. In other words, the higher the price, the lower the quantity demanded. This occurs because of diminishing marginal utility. That is, consumers use the first units of an economic good they purchase to serve their most urgent needs first, then they use each additional unit of the good to serve successively lower-valued ends.
Law of Demand
Definition
The Law of Demand is one of the most fundamental concepts in economics. It states that, all else being equal, the quantity demanded of a good or service is inversely related to its price. In other words, as the price increases, the quantity demanded decreases, and vice versa. This phenomenon is primarily due to diminishing marginal utility, meaning that consumers use the first units of a good to satisfy their most urgent needs, and each additional unit is used to satisfy progressively less valuable needs.
Origin
The concept of the Law of Demand can be traced back to classical economists of the late 18th and early 19th centuries, such as Adam Smith and David Ricardo. They observed market behaviors and formulated the basic principles of demand and supply. Over time, the Law of Demand has been further developed and refined, becoming a cornerstone of modern economics.
Categories and Characteristics
The Law of Demand can be divided into two main types: individual demand and market demand. Individual demand refers to a single consumer's willingness to purchase at different price levels, while market demand is the total willingness of all consumers to purchase at different price levels. The main characteristics of the Law of Demand include:
- Inverse relationship between price and quantity demanded.
- Diminishing marginal utility.
- The demand curve typically slopes downward to the right.
Specific Cases
Case 1: Suppose the price of apples in a city rises from 10 yuan per kilogram to 15 yuan per kilogram, resulting in the city's apple demand dropping from 1000 kilograms per week to 700 kilograms. This phenomenon aligns with the Law of Demand, as the price increase leads to a decrease in quantity demanded.
Case 2: During a sale season, a clothing store reduces the price of a coat from 200 yuan to 150 yuan, resulting in the sales volume of the coat increasing from 50 units per month to 80 units. This also aligns with the Law of Demand, as the price decrease leads to an increase in quantity demanded.
Common Questions
Q1: Why do some goods see an increase in demand when prices rise?
A1: This phenomenon is known as 'Giffen goods' or 'Veblen goods,' typically occurring in special cases where goods are seen as status symbols or are necessities.
Q2: Does the Law of Demand apply to all markets?
A2: The Law of Demand applies to most markets, but in some special markets, such as monopolies or perfectly competitive markets, it may exhibit different behaviors.
