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eat chocolates or consume tea, he will x = Commodity
demand more of them. Similarly, when a f = Function
new fashion hits the market, the consumer Px = Price of a commodity
demands that particular type of commodity.
If a commodity goes out of fashion then Assumptions :
suddenly the demand for that product tends Law of demand is based on the following
to fall. assumptions :
10) Level of Taxation : High rates of taxes on 1) Constant level of income : If the law
goods or services would increase the price of demand is to find true operate then,
of the goods or services. This, in turn would consumers' income should remain constant.
result in a decrease in demand for goods or If there is a rise in income, people may
services and vice-versa. demand more at a given price.
11) Other factors : 2) No change in size of population : It is
1) Climatic conditions assumed that the size of population remains
unchanged. Any change in the size and
2) Changes in technology
composition of population of a country
3) Government policy
affects the total demand for the product.
4) Customs and traditions etc.
3) Prices of substitute goods remain constant
Law of Demand : : It is assumed that the prices of substitutes
Introduction : remain unchanged. Any change in the price
The law of demand was introduced by of the substitute will affect the demand for
Prof. Alfred Marshall in his book, ‘Principles of the commodity.
Economics’, which was published in 1890. The 4) Prices of complementary goods remain
law explains the functional relationship between constant : It is assumed that the prices
price and quantity demanded. of complementary goods remain unchanged
because a change in the price of one good
Statement of the Law :
will affect the demand for the other.
According to Prof. Alfred Marshall,
“Other things being equal, higher the price of a 5) No expectations about future changes in
commodity, smaller is the quantity demanded prices : It is assumed that consumers do not
expect any further change in price in the
and lower the price of a commodity, larger is the near future. If consumers expect a rise in
quantity demanded.”
prices in future, they may demand more in
In other words, other factors remaining the present even at existing high price.
constant, if the price of a commodity rises, 6) No change in tastes, habits, preferences,
demand for it falls and when price of a fashions etc. : It is assumed that consumers'
commodity falls demand for the commodity tastes, habits, preferences, fashions etc.
rises. Thus, there is an inverse relationship should remain unchanged. Any change
between price and quantity demanded.
in these factors will lead to a change in
Symbolically, the functional relationship demand.
between demand and price is expressed as :
7) No change in taxation policy : Taxation
Dx = f (Px)
policy of the government has a great impact
Where D = Demand for a commodity on demand for various goods and services.
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