Law of demand. Overview & Explanation

In this article, we're gonna talk about the law of demand. So the law of demand says that all other things are held equal if there's an increase in the price of a good or service, that's gonna cause a decrease in the quantity demanded of that good or service and conversely if the price of a good or service goes down, if it decreases, people are going to demand more of the good.

So if your favorite pair of shoes, if it goes on sale and there's a decrease in price people are going to want to demand and buy more of it. Another way of thinking about is other things being equal as the price of a good Rises people are going to buy less of it and as the price of a good Falls people are going to buy more of it.

Now there are certain exceptions there's these things called Giffen goods and stuff but this is such a frequent relationship that we see in actual practice that we actually call it a law, we call it the law of demand. So I want to show you how we would map this out and I'm gonna show you a thing called a demand schedule. Let's think about the demand for chocolate bars. Let's think about your personal demand for chocolate bars actually. I'm hoping you like chocolate and you go to the store and the price of chocolate bars is one dollar, you would be willing to buy ten chocolate bars. That would be your quantity demanded. 

Now if you went to the store and instead the price was two dollars or two euros you would instead want to buy eight chocolate bars because now you're seeing that there's a higher price, it's two dollars instead of one dollar and you still like chocolate bars but you're not going to buy ten so you gonna buy eight.

We can think about what if the price were to go up to three dollars or what if the price went to four or five dollars and we can map out the amount the quantity of chocolate bars that you would demand that you would want to buy at each price. We could go through the different prices and say that the price the quantity that you demand is going to go down as the price increases. So as the price goes from $1 to $2 to all the way up to $5, at $5 you say "Look I really like chocolate bars but for $5 a piece I really would only get two of them and so what we can do now that we have this demand schedule and we can now actually create a graph that would show our your demand. 

We could put (P) price on the y axis and then quantity demanded (Q) on the x-axis and you'll see this very common in economics. We can go and say at a price of $1 you demanded 10 units. So we'll just plot a little point there. Now at $2, at $2 you would demand 8 chocolate bars, and then at three dollars you would demand six chocolate bars and at 4 dollars you would demand four chocolate bars and at five dollars you would demand just two chocolate bars.

Now you don't notice something this is the demand curve. It doesn't have to be a straight line but in this example it is and so when you study economics you'll see that the demand curve is going to be downward sloping and so we have a downward sloping demand curve and what does that reflect? That reflects our law of demand and that is that as the price of this good - so, in this case, chocolate bars as the price increases from 1 to 2 to 3 to 4 to 5 you are demanding less.

We'll talk about in future articles about what can happen there could be a change in preferences there could be something happen that makes you want chocolate bars even more maybe your favorite musician starts eating chocolate bars, you think that's the cool thing to do and we can have where we actually have a shift in the demand curve and so then I have to draw a new demand curve I and we'll talk about that and articles to come.

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