Theory Of Demand

What is Demand ?

Demand = Desire to buy + Willingness to pay + ability to pay
For e.g; A person wants to buy something but he does not have the ability to pay i.e. the required money to purchase that product then this is not demand. Similarly if a person has the ability to pay but does not have the desire to buy something then this is also not demand. For demand to occur all the three parameters i.e. desire to buy , willingness and ability to pay are necessary.

Theoretical Definition of Demand:
Demand refers to the total or a given quantity of a commodity that are purchased by consumers in the market at a particular price at a particular time.

The Law of Demand:     
The law of demand states that quantity demanded of a commodity varies inversely with the price of that commodity , ceteris paribus.
In simple words, people will buy more at lower prices and buy less at higher prices , other things remaining constant.

Important Features Of The Law Of Demand:

1. Inverse relation
There is an inverse relationship between price and quantity demanded of a commodity.

2. Price is an independent variable and demand is a dependent variable
In this case we study the effect of price on quantity demanded only.

3. Negative slope of the curve
The demand curve slopes downwards from left to right to show the inverse relationship between price and quantity demanded of a commodity.

Assumptions of The Law Of Demand:
1. Tastes and preferences, customs and habits of consumers should remain constant.
2. Price of related goods should not undergo changes.
3. Income of consumers should remain the same.
4. No new substitutes should be discovered.
5. Consumers should not anticipate change in prices.
6. Goods should not have prestige value.
7. No change in government policy.