Law of Demand - Market Demand Analysis, Business Economics & Finance Video Lecture | Business Economics & Finance - B Com

when you talk about demand what comes to
mind first is markets a market is the
platform that brings together buyers of
different sorts and sellers of different
sorts they are the demanders and the
suppliers in any situation that involves
a potential exchange of goods and cash
the corner gas station an e-commerce
site the local music store a farmers
roadside stand these are all markets
familiar to us all now let's go on to
examine what demand is demand is a
schedule or a curve that shows the
quantities of a product that are
purchased at various possible prices
other things equal it shows you the
pattern that a consumer follows when he
is willing and able to purchase various
amounts of a product at each of a series
of possible prices during a specified
period of time let's consider this
hypothetical demand schedule for a
single consumer purchasing bushels of
corn this table shows how the various
prices of corn and the quantity of corn
a particular consumer would be willing
and able to purchase at each of these
prices are related at five dollars per
bushel the consumer is willing and able
to buy 10 bushels per week but at $4 the
consumer is willing and able to buy as
many as 20 bushels per week and so forth
thus demand is simply a statement of a
buyers intentions with respect to the
purchase of a product let's represent
the relationship between the price of
corn and individuals demand for this
corn on a simple graph let's measure
quantity demanded on the horizontal axis
and price on the vertical axis let's
plot and connect the five price quantity
data points listed in the table with a
smooth curve label D this curve is what
we call a demand curve it's downward
slope reflects an inverse relationship
that economists call the law of demand
so what we understand is that other
things equal consumers will buy more of
a product as its price declines and less
of it as its price rises
having come to this conclusion we must
now ask ourselves another question why
is there an inverse relationship between
price and quantity demanded actually the
law of demand is consistent with common
sense people do tend to buy more of
something when it's priced low rather
than when it's priced high that's why
there is always a rush at clearance
sales its ample evidence of the law of
demand buying depends on one more thing
and that's utility it's been noted that
in any specific time period a buyer
derives less satisfaction from each
successive unit of the product that he
consumes this satisfaction can be termed
marginal utility because successive
units yield less and less marginal
utility he will buy additional units if
only the price of those units is
progressively reduced we see therefore
that consumption is subject to
diminishing marginal utility for example
a decline in the price of chicken will
increase the purchasing power of
consumer incomes enabling people to buy
more chicken this is the income effect
that price decline has on demand at a
lower price chicken is relatively more
attractive and consumers tend to
substitute it for pork lamb beef and
fish this is the substitution effect
that price decline has on demand income
and substitution effects combine to make
consumers able and willing to buy more
of a product at a low price than at a
high price it does becomes clear how
price and quantity demanded are
inversely related