(A) Introduction : The law of demand is one of the important law of consumption which explain the functional relationship between price and quantity demanded of a commodity. Prof. Alfred Marshall in his book ‘Principle of Economics’ which was published in 1890, has explained the consumer’s behaviour as follows:
(B) Statement of the Law : According to Prof. Alfred Marshall, “Other things being equal, higher the price of a commodity, smaller is the quantity demanded and lower the price of a commodity, larger is the quantity demanded. In other words, other things remaining constant, demand varies inversely with price. Marshall’s law of demand describes the functional relationship between demand and price.
It can be presented as:
Dx = f(Px)
where D = Demand for Commodity
x = Commodity
f = function
Px = Price of a commodity
(C) Assumption :
- Prices of Substitute goods remain constant : The price of substitute goods should remain unchanged, as change in the price will affect the demand for the commodity.
- Prices of Complementary goods s remains constant : A change in the price j of one good will affect the demand for other, thus the prices of complementary goods should remain unchanged.
- No Expectation about future changes jj in prices: The consumers do not expect any \ significance rise or fall in the future prices.
- No change in Taxation Policy : The level of direct and indirect tax imposed by the government on the income and goods should remain constant.
- Constant Level of Income : Consumer’s income must remain unchanged because if income increases, consumer may buy more even at a higher price not following the law of demand.
- No Change in Tastes, Habits, Preference, Fashions, etc. : If the taste changes then the consumers preference will also change which will affect the demand. When commodities are out of fashion, then demand will be low even at a lower price.
(D) Explanation of the law of Demand : The law of demand is explained with the help of the following demand schedule and diagram:
Demand Schedule:
| Price of Commodity ‘X’ (in Rs.) |
Quantity Demanded of Commodity ‘X’ (in kgs) |
| 50 |
1 |
| 40 |
2 |
| 30 |
3 |
| 20 |
4 |
| 10 |
5 |
From the above demand schedule we observe that at higher price of ₹ 50 per kg, quantity demanded is 1 kg. When price fall from ₹ 50 to ₹ 40, quantity demanded rises from 1 kg to 2 kg. Similarly, at price ₹ 30 quantity demanded is 3kg and when price falls from ₹ 20 to ₹ 10 quantity demanded rises from 4 kg to 5 kg. This shows an inverse relationship between price and demand.
In the above diagram X-axis represent quantity demanded and Y-axis represent the price of the commodity. The demand curve DD slopes downwards from left to right ] showing an inverse relationship between price and demand. It has a negative slope.
