Law of Demand

Law of demand states that other things being equal, the demand for a product is inversely proportional to the price of the product. In other words, the demand is higher at lower prices and lower at higher prices under the assumption of ceteris paribus (i.e. other things being equal).

The other-things-being-equal assumption is very important in law of demand because the demand for goods also varies with many factors other than price. The law of demand simplifies the price-demand relationship by assuming that all other demand-affecting factors are constant.

We can easily find many examples of economic behavior demonstrating the law of demand. For example, we are likely to buy more oranges if the price per dozen is $3 and less if the price per dozen is $6.

The following graph shows the relation between price and quantity demanded for hypothetical buyer:

Demand Curve Chart

The graph shows that the quantity demanded decreased as the price goes up. The demand line shown here is straight, but in reality, it is convex downward hence it is called the demand curve.


There are three common approaches to explain the law of demand. The first one is simple:

Since all people have limited incomes, the price of goods is an obstacle in our way to buy higher quantity. When the price is low, we will be able to purchase more.

The other more technical explanations to explain the law of demand include law of diminishing marginal utility, the income effect and the substitution effect.

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