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Question
State and explain the law of demand.
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Solution
The law of demand was introduced by Prof. Alfred Marshall in his book, ‘Principles of Economics’, which was published in 1890. The law explains the functional relationship between price and quantity demanded.
According to Prof. Alfred Marshall, “Other things being equal, the higher the price of a commodity, the smaller is the quantity demanded, and the lower the price of a commodity, the larger is the quantity demanded.” In other words, other factors remaining constant, if the price of a commodity rises, demand for it falls; and when the price of a commodity falls, demand for it rises. Thus, there is an inverse relationship between price and quantity demanded. Symbolically, the functional relationship between demand and price is expressed as:
Dx = f (Px)
Where D = Demand for a commodity
x = Commodity
f = Function
Px = Price of a commodity
| Price of a commodity ‘x’ (₹) |
Quantity demanded of the commodity ‘x’ (in kgs.) |
| 50 | 1 |
| 40 | 2 |
| 30 | 3 |
| 20 | 4 |
| 10 | 5 |
As shown in the table, when the price of commodity ‘x’ is ₹ 50, the quantity demanded is 1 kg. When the price falls from ₹ 50 to ₹ 40, the quantity demanded rises from 1 kg to 2 kg. Similarly, at a price of ₹ 30, the quantity demanded is 3 kgs, and when the price falls from ₹ 20 to ₹ 10, the quantity demanded rises from 4 kgs to 5 kgs. Thus, as the price of a commodity falls, quantity demanded rises, and when the price of the commodity rises, quantity demanded falls. This shows an inverse relationship between price and quantity demanded.
The X-axis represents the demand for the commodity, and the Y-axis represents the price of the commodity x. DD is the demand curve, which slopes downward from left to right because price and quantity demanded are inversely related.
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