what is law of demand?
http://www.investopedia.com/terms/l/lawofdemand.asp
Thanks Ms. Sue
You're welcome, Marvin.
The law of demand is an economic principle that states that as the price of a good or service increases, the quantity demanded for that good or service decreases, and vice versa, all other things being equal. In simpler terms, it means that when the price of a product goes up, people tend to buy less of it, and when the price goes down, people tend to buy more of it.
The law of demand can be explained by the relationship between price and consumer behavior. It is based on the idea that as prices rise, consumers have to forego the consumption of certain goods or services because they become relatively more expensive. On the other hand, when prices decrease, consumers find these goods or services more affordable, which prompts them to buy more.
To understand and apply the law of demand, follow these steps:
1. Collect data: Assess the historical prices and quantities of a particular good or service. This can be done through market research, surveys, or by analyzing sales data.
2. Plot the relationship: Create a graph with price on the vertical axis and demand (quantity) on the horizontal axis. This will help visualize the relationship between price and demand.
3. Observe the trend: Analyze the plotted data to identify the relationship between price and quantity demanded. Note whether there is an inverse correlation, meaning as price decreases, quantity demanded increases.
4. Analyze other factors: Consider other factors that may impact demand such as income levels, consumer preferences, advertising, or the availability of substitute goods. All these factors can influence demand independently of price.
5. Make predictions: Use the law of demand to make predictions about how changes in price will affect the quantity demanded. For example, if the price of a product increases, it can be expected that the quantity demanded will decrease, resulting in a downward movement along the demand curve.
It's important to note that the law of demand is a foundational concept in economics, but it is a simplification of real-world situations and may not hold true in every case due to various factors influencing consumer behavior.