Question

State the law of demand and explain its assumptions.

Answer 1

According to the law of demand, other things being equal, if the price of a commodity falls, the quantity demanded of it will rise, and if the price of a commodity rises, its quantity demanded will decline. Thus, there is an inverse relationship between price and quantity demanded, other things being same.

Assumptions of law of demand are the following:

1. Income level should remain stable.
2. Taste of consumer should not change.
3. Value of related goods should be constant.
4. Any new substitute should not come in the market.
5. Expectation of risen value should be negligible.
6. Advertisement expenditure has to be same.