Demand is the number of consumers who are able and willing to purchase goods at a possible price throughout a specific time period. Demand for anything or service indicates that people want it and are ready and able to pay for it. Demand for a product is influenced by its price, the pricing of competing products, the consumer’s income, as well as her interests and preferences. The amount of the product selected by the consumer is likely to fluctuate whenever one or more of these factors change. The amount of a product the consumer ideally picks becomes completely reliant on its price if the costs of other commodities, the consumer’s income, and her likes and preferences do not vary. The demand function describes the relationship between a good’s price and the optimum amount chosen by a consumer.

One of the most fundamental ideas in economics is the law of demand. It explains how market economies distribute resources and set the prices of products and services that we see in daily transactions by combining the law of supply.

According to the law of demand, the amount bought varies inversely with price. In other words, the amount requested decreases as the price increases. Marginal utility is what causes this to happen. In other words, consumers utilise the initial units of an economic product they buy to fulfil their most pressing requirements first, and then use the subsequent units to fulfil progressively lower-valued goals.

Key points:

1) According to the law of demand, which is a cornerstone of economics, consumers would demand fewer units of a product at a higher price.

2) The law of diminishing marginal utility, which states that consumers initially consume economic commodities to meet their most important wants, is what drives demand.

3) The total amount sought across all market consumers at each price is expressed by a market demand curve.

4) Price changes can cause a demand curve to shift in one direction or the other, but they do not by themselves affect demand.

5) Demand fluctuates in size and shape, not in reaction to price changes, but rather to fluctuations in consumer preferences, income, or associated economic commodities.

Economics is the study of how individuals make use of few resources to satiate endless demands. These limitless needs are the focus of the law of demand. In their economic behaviour, individuals naturally prioritise more urgent demands and requirements above less urgent ones. This habit also extends to how people pick among the limited means at their disposal. For any economic good, a consumer will often consume the first unit they can get their hands on to take care of the most satisfying need they have that the good can meet.

Think about a castaway on a remote island who finds a six-pack of bottled freshwater that has washed up on the coast. The castaway’s most satisfying need, perhaps drinking water to stave off dehydration, will be met with the first bottle. The second bottle may be used for bathing, a serious but less immediate requirement, to ward off sickness. Up to the last bottle, which the castaway uses for a relatively low priority task like watering a little potted plant to keep him happy on the island, the castaway may use the third bottle for a less urgent necessity like cooking some fish to enjoy a hot lunch. In our case, we can argue that the castaway values each consecutive bottle of water less than the one before since each additional bottle of water is spent for a gradually less highly valued demand or need by our castaway. We may argue that consumers value each new unit of any given commodity or service less and less as they buy more of it on the open market. In a similar vein, each additional unit of any given good or service that they buy will be put to a less valued use than the one before. They are prepared to pay less for the product because they place less value on each extra unit. Therefore, buyers are prepared to pay less for a good’s pricing the more units they purchase of it.

A market demand curve, which is always downward-sloping and is seen in the figure below, may be described by adding up all the units of a product that consumers are willing to purchase at any given price. The quantity (Q) requested at each of the curve’s points (A, B, and C) corresponds to a certain price (P). For instance, at point A, the price is high and the quantity needed is low (Q1) (P1). Customers prefer less of the good when it costs more, and more when it costs less.

Limitations/Exceptions of law of demand

Following are some of the limitations/ exceptions of law of demand

1)   Change in income

If consumer income rises, they will purchase more products or use more services—even at a higher cost. On the other hand, if their income drops, they will desire fewer goods or services, even at a cheaper price. It violates the demand law.

2)   Goods having prestige value

This exception is related to the economist T.Velben and his distinctive conception philosophy. Only wealthy people may buy a select few items, like diamonds. These products are beyond the means of the average person due to their exorbitant pricing. The diamond has a higher prestige value the more expensive it is.In this scenario, a buyer will purchase fewer diamonds at a discount since as their price drops, so does their prestige worth. On the other hand, as the price of diamonds rises, so does their status worth and the amount desired of them.

3)   Inferior goods/ Giffen goods

Giffen products are a few unique sorts of inferior goods. Giffen products include cheaper variations of items like low-cost rice, low-cost bread, etc.Robert Giffen made note of this exception when he noted that low-paid British employees bought less wheat as the price went up, which goes against the law of demand. As a result, there is an inverse link between price and demand for Giffen products.

4)   Fear of shortage

Even though a commodity’s price is now rising, consumers will purchase more of it if they believe it will become rare in the near future.For instance, consumers would purchase more petrol even though the price is high if they believe that there will be a scarcity in the near future.

5)   Basic necessities of life

The law of demand does not apply to fundamental necessities like salt, flour,matches, medication, etc. because consumer demand for these products that  does not fluctuate in response to price changes.

6)   Price expectation

The consumer does not purchase more even though the price goes down when they anticipate that the commodity’s price will decline soon.However, when they anticipate a future increase in the price of the product, they will purchase more even at a higher price. These two conditions go against the rule of demand.

7)   Change in fashion

When the commodities are deemed out of style or fashion, the law of demand does not apply.Even if the price drops, people won’t buy more of the item if it goes out of style. For example: People do not purchase old fashioned shirts and pantaloons nowadays even though they’ve become cheap. In the same way, consumer purchase fashionable goods despite price increase.

• Ignorance of the consumer

If the consumer is unaware of the increase in product prices, he may purchase more products at a greater price.

• Addicted items

It does not apply on addicted products like drugs and liquor. They don’t care about the price hike. Its demand remains above.

10) Luxury Goods

The demand for luxury goods is a noteworthy exception to the law. In such circumstances, the wealthy consumer won’t quit consuming even if the price rises. This category often includes expensive coats, perfumes, boots etc.

11)Trading in stock exchanges:

In the market for speculation, the law of demand won’t apply. The law of demand states that a rise in price will cause a decrease in demand, however in the event of speculation and trading, people will continue to purchase more stocks despite the rise in stock prices.