Law of Demand for CBSE Class 12 Economics – Part ii
Here we will discuss a topic of Economics ‘ Demand Schedule, Demand Curve, Law of Demand and movement and the shift in the Demand curve’ for Class 12 based on the pattern of NCERT CBSE Class 12 Economics.
Law of Demand
The law of demand refers to the relationship between the quantity of the product demanded and the price of a product. It shows an inverse relationship between Demand and price while other determinants remaining the same. According to the Alfred Marshal- the amount demanded increases with the fall in price and decreases with the rise in price.
“At any given time, the demand for a commodity or service at the prevailing price is greater than it would be at a higher price and less than it would be at a lower price” Prof Thomas
Assumptions of Law- all the other determinants are constant. There is no change in Income, custom, quality, substitute goods, complementary goods, taste and preference, fiscal measures, etc.
It is the tabular representation of the relationship between the demand for a product and a price. There are two types of Demand Schedule
Individual Demand Schedule– Quantity demanded by an individual consumer at a specified price and time..
Market demand schedule-Quantity demanded by aggregate consumers at a specified price and time
The demand curve is the representation of price and demand. It shows the inverse relationship between price and the quantity demanded. It is the graphical representation of the demand schedule.
- The x-axis indicates Price and Y-axis indicate quantity demanded.
- The demand slopes negatively downward.
- The individual purchase more commodity at the lower price in the given time period(other factors remaining same)
Exceptions to the law of demand
- Giffen Paradox (inferior and superior goods) – According to Sir Robert Giffen, demand decreases with an increase in consumer income in case of Inferior goods and superior goods
- Necessity Goods – Law of demand not applicable as demand is not much affected by fall or rise in price. For eg Salt
- Prestige or luxurious goods– Demand remains the same with an increase and decreases in price as these goods are the status symbol. For e.g Diamond
- Speculation – When the consumer makes the assumption of changes in price in the future. If they expect the rise in the price of product X in the future, the demand for the product will increase at present.
- Brand loyalty – Preference of a consumer for a specific brand. Demand remains the same with an increase and decrease in price.
- Emergency Situations – In an emergency situation like an earthquake, war, etc. Demand for a product like Flour will increase regardless of price.
The shift in the Demand Curve
When the price remains constant and change in quantity demanded takes place due to other factors that cause the shift in the demand curve. The shift in the demand curve can be due to a change in Income, taste, preference, the price of related goods and other factors.
The rightward shift in the demand curve implies an increase in demand for a commodity at the same price due to changes in other factors other than price.
The leftward shift in the demand curve implies a fall in demand at the same price due to changes in other factors other than price.
- The x-axis indicates the Price and Y-axis indicate quantity demanded.
- Price remains unchanged
- D-D1 – rightward shift-increase in quantity demanded
- D-D2- leftward shift- decrease in quantity demanded.
Movement on Demand Curve
When product quantity demanded changes due to the change in price and other things remain unchanged. The movement takes place in two ways-
Upward movement– It implies contraction of demand due to the increase in price.
Downward movement– It implies an expansion in demand due to the fall in price.
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