Law of demand

Welcome. We will discuss a fundamental concept in microeconomics, the law of demand. This principle lies at the heart of economic theory and real world decision making. The law of demand states that all else being equal, when the price of a good or service rises, the quantity demanded falls, and when the price falls, quantity demanded rises. This inverse relationship is depicted as a downward sloping demand curve on a graph with price on the vertical axis and quantity on the horizontal axis. The demand curve visually represents the law of demand. As we move along the curve, changes in price cause adjustments in the quantity demanded. At higher prices, fewer consumers are willing or able to purchase the good, resulting in lower quantity demanded. Conversely, at lower prices, more consumers can afford the good, increasing quantity demanded. This is a movement along the curve, not a shift of the curve itself. The demand curve is typically drawn, holding all other determinants of demand constant, such as income, tastes and the prices of other goods. In both United Kingdom and United States economic textbooks, this relationship is consistently illustrated, though some terminology may differ. The demand curve slopes downwards due to two main effects, the income effect and the substitution effect. The income effect arises as a price fall, increases consumers purchasing power, letting them buy more with their given income.