Demand in power to purchase a product with willingness to purchase it. Willingness and ability to pay are necessary conditions of demand.
Law of demand
Law of demand states that when price of a product increases, its demand decreases in market and vice versa.
Assumptions of Law
- no change in taste or fashion.
- Money income of the consumer remains constant
- Price of other goods remains constant.
Demand schedule and curve:
The demand schedule refers to the various quantities of a good which a consumer would demand at various hypothetical prices.
Negatively sloped demand curve also shows that there is a negative relation between price and quantity demanded of a good.
Real demand curve:
A real demand curve slopes downward from left to right and convex to the origin, which shows that quantity demanded increases progressively with the fall in price.
Reasons of negative slope of demand curve:
- Income effect;
- Substitution effect;
- Entry of new consumers into the market;
- Diminishing Marginal Utility.
The first factor causes on-the-line change while the remaining factors cause Shift in demand curve. The price of a good held constant, when the demand increases it shifts demand curve upwards while the decrease in demand is shown as inward shift in demand curve.