The law of demand states that 'there is a negative relationship between the price of good and the quantity demand' cetens paribus!
1. Explain the meaning of this statement. Give practical examples.
2. How does the law of supply differ from the law of demand
3. Explain using practical examples any two(2) exceptions to the demand. (Assignment form)
1. The law of demand states that when the price of a good or service decreases, the quantity demanded for that good or service increases, and when the price of a good or service increases, the quantity demanded decreases, all other factors being constant. This means that as the price of a product goes down, more people are willing and able to purchase it, and as the price goes up, fewer people are willing and able to purchase it.
Practical examples of the law of demand can be seen in everyday life. For instance, when a popular brand of sneakers goes on sale, more people are likely to buy them because the price is lower. On the other hand, if the price of a particular electronic device goes up, fewer people may be willing to purchase it.
2. The law of supply, on the other hand, states that there is a positive relationship between the price of a good and the quantity supplied, ceteris paribus. This means that as the price of a good increases, suppliers are willing and able to supply more of that good, and as the price decreases, suppliers are willing to supply less.
The main difference between the law of supply and the law of demand is the direction of the relationship between price and quantity. While the law of demand shows a negative relationship between price and quantity demanded, the law of supply shows a positive relationship between price and quantity supplied.
3. Two exceptions to the law of demand are Veblen goods and Giffen goods.
Veblen goods are goods for which the demand actually increases as the price increases. This goes against the general law of demand because these goods are seen as status symbols. For example, luxury goods like designer handbags or expensive jewelry are often considered Veblen goods. As the price of these goods increases, demand may actually increase because they are perceived as being more desirable due to their high cost.
Giffen goods are goods for which the demand actually increases as the price increases, but for a different reason than Veblen goods. This can occur when a Giffen good is an inferior good, meaning that as income decreases, demand for the lower-quality, lower-priced Giffen good increases. An example of a potential Giffen good is basic food staples like rice or bread for low-income individuals. If the price of rice goes up, individuals with limited income may buy more rice because they can no longer afford more expensive alternatives.