Law of Demand & its exceptions
- 1. Subject:- Managerial Economics and Business Environment Subject Teacher:- Nirav Mandavia Presented by – Pallavi Priya Date:24/9/16
- 2. Meaning of Demand: Whenever desire for anything is backed by ability and willingness to pay for that thing, it flows out in the form of an effective demand. Desire to purchase Ability to pay Willingness to spent Demand = desire + ability to pay + willingness to pay
- 3. In simple words, the law of demand states that, other things remaining constant, as the price of a particular commodity increases, the quantity demanded for it decreases and vice-versa. “Other things being equal, the demand is higher with the fall in price and diminishes with the rise in price.” -Alfred Marshall
- 5. No Change In Consumer Income No Change In Consumer Preference No Change In Fashion No Change In Price of Related Goods No Expectation of Future Price Change
- 6. According to the law of demand, there exists an inverse relationship between price of a commodity and its quantity demanded. However, there are certain exceptions to this rule which are enumerated as:
- 7. 1. Giffen Goods : potatoes and other staple foods 2. Prestigious Goods: diamond 3. Fear of Shortage: onion and gold 4. Expectations of Change in the price of the commodity
- 8. Thus, it can be concluded that the law of demand does not apply in every case and situation and there are certain circumstances where the law of demand becomes ineffective.