In the realm of economics, the law of demand asserts a fundamental relationship between the quantity demanded of a good or service and its price. Consumers are rational actors who make decisions based on the availability and cost of goods. As the price of a good rises, the quantity demanded typically decreases, while a decrease in price leads to an increase in demand. This inverse relationship between price and quantity demanded forms the cornerstone of the law of demand.
The Law of Demand: A Deeper Dive
The law of demand is an economic principle that states that there is an inverse relationship between the price of a good or service and the quantity demanded, assuming other factors remain constant. In other words, as the price of something goes up, people will tend to buy less of it; and as the price goes down, they will tend to buy more.
Key Components:
- Price: The price of the good or service.
- Quantity Demanded: The amount of the good or service that consumers are willing and able to buy at a given price.
Factors that can Influence Demand:
- Income of consumers
- Tastes and preferences
- Availability of substitutes
- Complementary goods
- Expectations about future prices
Graphical Representation:
The law of demand can be represented graphically as a demand curve, which shows the inverse relationship between price and quantity demanded. The demand curve is typically downward sloping, indicating that as the price increases, the quantity demanded decreases.
Exceptions:
In certain cases, the law of demand may not hold true, such as:
- Giffen goods: Goods for which demand increases as the price increases (e.g., bread during a famine).
- Veblen goods: Luxury goods for which demand increases as the price increases (e.g., designer handbags).
Table of Demand for Different Prices:
| Price | Quantity Demanded |
|---|---|
| $10 | 100 units |
| $15 | 75 units |
| $20 | 50 units |
| $25 | 25 units |
Question 1:
What does the law of demand define?
Answer:
Subject: Law of demand
Predicate: Defines
Object: Relationship between price and quantity demanded
Question 2:
How does the law of demand explain consumer behavior?
Answer:
Subject: Law of demand
Predicate: Explains
Object: Inverse relationship between price and quantity demanded
Question 3:
What is the key attribute of the law of demand?
Answer:
Subject: Law of demand
Attribute: Inverse relationship between price and quantity demanded
Value: Quantity demanded decreases as price increases
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