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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, 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 factors remaining constant, if the price of a commodity rises, demand for it falls and when price of a commodity falls demand for the commodity 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
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Price of commodity ‘x’ (₹)
|
|
| 50 | 1 |
| 40 | 2 |
| 30 | 3 |
| 20 | 4 |
| 10 | 5 |
As shown in Table when price of commodity ‘x’ is ₹ 50, quantity demanded is 1 kg. When price falls from ₹ 50 to ₹ 40, quantity demanded rises from 1 kg to 2 kgs. Similarly, at price ₹ 30, quantity demanded is 3 kgs and when price falls from ₹ 20 to ₹ 10, quantity demanded rises from 4 kg sto 5 kgs Thus, as the price of a commodity falls, quantity demanded rises and when price of commodity rises, quantity demanded falls. This shows an inverse relationship between price and quantity demanded.
In X axis represents the demand for the commodity and Y axis represents the price of commodity x. DD is the demand curve, which slopes downward from left to right due to an inverse relationship between price and quantity demanded.
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