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State TWO Elements of Demand. Explain the Law of Demand with the help of a Diagram.

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The TWO Elements of Demand are : 

  • Willingness to Buy a Commodity 
  • Resources to Buy that Commodity

The Law of Demand : In law of demand we studies the impact on quantity demanded due to change in price of concerned commodity, when rest of the determinants remains constant. According to law of demand, "More quantity is demanded due to fall in price and less quantity is demanded due to rise in price, when other things remains constant." Thus law of demand shows the negative relationship between price of a commodity and its quantity demanded. According to law of demand, demand of a commodity is a function of its price.

Dx = f (Px) 

here, Dx = Demand of X commodity, Px = Price of X commodity Law of demand is only qualitative statement ( because it only indicates the direction in which the demand will change, whether it rises or falls). Law of demand says that demand varies inversely with price, not necessarily propotionately. 

Assumptions of Law of Demand : The phrase, "other things remains constant" used in law of demand, represents assumptions of law of demand. The law of demand would be applicable only if other things would remains the same, (ceteris paribus) means the determinants of demand other than price of the concerned commodity remains unchanged. 

The following are some important assumptions of law of demand :- 

(i) Price of other related goods remains constant. 

(ii) Income of the consumer remains unchanged. 

(iii) Psychological factors like habits, taste, preferences of the consumers remains constant. 

(iv) There is no expectation about the future price changes, etc. 

Explanation of the Law : 

According to law of demand consumer demand less of the commodity when it becomes costlier and consumer demand more of the commodity when it becomes cheaper. In other words it shows the inverse relationship between price of concerned commodity and its quantity demanded. This inverse relationship can be seen in demand schedule and demand curve. The negative slope of the demand curve is due to the inverse relationship between price of the commodity and quantity demanded. When the price of commodity was OP the consumer was demanding OQ units of the commodity. As the price rises to OP1 the demand falls to OQ1 (which is contraction in demand) and as the price falls to OP2 the demand rises to OQ2 (which is expansion in demand). 

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