Law of Demand

The law of demand states that, other factors held constant, as price of a good or service increases. its quantity demanded by consumers and consequently sold by firms decreases. The law shows that there is an inverse relation between price and quantity demanded, Managers, should be aware that the law indicates that a price change will have an impact on a firms' sales volume and total volume and thus, its profitability. It should be noted that the law is applicable when other factors influencing demand are taken as constant and only price is changed. The law can be depicted in the form of a demand schedule and demand curve.

The demand schedule for a good is a table that shows the total quantity of a good that will be purchased at each price. Suppose there are two buyers for computers in the market, namely buyer X and buyer Y.

Demand Schedule for PC's 

The demand by buyer X and buyer Y are individual demands. Total demand by the two is market demand. Thus, the total market demand can be derived by adding the quantity of a good demanded by all buyers, at each price. Table 3.2 shows that the market demand for computers is 950 per year at Rs 10,000 and 600 computers will be demanded at Rs 20,000, and so on. A demand curve is a graphical depiction of price - quantity relationships. In Fig. 3.3, D, and D y are individual demand curves and Dm is the market demand curve which is derived by horizontal summation of individual demand curves. Each point on the demand curve shows a unique combination of price and quantity. It can be observed from Fig. 3.3 that the demand curve slopes downwards to the right. Now the question that arises is: Why does the demand curve slope downwards to the right? Or

Why does the law of demand operate?

The law can be explained in terms of substitution and income effect. When the price 6£ a good falls (prices of related goods remaining constant), it becomes relatively cheaper than other goods. For instance the purchase of relatively more oranges when the price of apples increases is due to substitution effect Therefore, substitution effect is due to consumers' inherent tendency to substitute cheaper goods for the relatively expensive ones. Income effect arises with an increase in the purchasing power of the consumer due to a decrease in the price of the good. That is, at lower prices the individual can buy same bundle of goods with lesser money or he can buy more of the same good with the same money. The change in the purchasing power of the consumer due to a price change is called income effect. 

Managerial Economics Tutoring - Assignment Help

Our online managerial economics experts are here for your help. Expertsmind.com online assignment help-homework help brings you high grade in your courses and examination, We at Expertsmind.com offers managerial economics assignment help, managerial economics homework help and projects help. We offer complete package of managerial economics online tutoring for 24x7 hours.

ExpertsMind.com - Law of Demand Assignment Help, Law of Demand Homework Help, Law of Demand Assignment Tutors, Law of Demand Solutions, Law of Demand Answers, Consumer Demand Analysis Assignment Tutors