Download In general, the law of demand states that the quantity

In general, the law of demand states that the quantity demanded and
the price of a good or service is inversely related, other things
remaining constant.
LEARNING OBJECTIVE [ edit ]
Explain the concept of demand and discuss the factors that affect it
KEY POINTS [ edit ]
The demand curve is downward sloping, indicating the negative relationship between the price of
a product and the quantity demanded.
For normal goods, a change in price will be reflected as a move along the demand curve while
a non­price change will result in a shift of the demand curve.
Two exceptions to the law of demand are Giffen goods andVeblen goods.
TERMS [ edit ]
Giffen good
A good which people consume more of as only the price rises; Having a positive price elasticity of
demand.
normal good
A good for which demand increases when income increases and falls when income decreases but
price remains constant.
Veblen good
A good for which people's preference for buying them increases as a direct function of their price,
as greater price confers greater status.
Give us feedback on this content: FULL TEXT [ edit ]
In economics, the law of demand states that the quantity demanded and the price of a good
or service is inversely related, other things
remaining constant. Therefore, the
demand curve will generally be downward
sloping, indicating the negative
relationship between the price of a good
or service and the quantity demanded.
Movement along the demand curve
If the income of the consumer, prices of
the related goods, and preferences of the
consumer remain unchanged, then the
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change in quantity of good demanded by
the consumer will be negatively correlated to the change in the price of the good or service.
The change in price will be reflected as a move along the demand curve.
Shift in the demand curve
The demand curve will shift, move either inward or outward as a result of non­price factors.
A shift in demand can be related to the following factors (non­exhaustive list):
Consumer preferences
Consumer income
Change in the price of related goods (i.e. compliments)
Change in the number of buyers
Consumer expectations
P
D1
D2
S
P2
P1
Q1 Q2
Q
Law of Demand
A demand curve, shown in red and shifting to the right, demonstrating the inverse relationship between
price and quantity demanded (the curve slopes downwards from left to right; higher prices reduce the
quantity demanded).
Though in general terms and specific to normal goods, demand will exhibit a downward
slope, there are exceptions: Giffen goods and Veblen goods
Giffen goods
A Giffen good describes an extreme case for an inferior good. In theory, a Giffen good would
display the characteristic that as price increases, demand for the product increases. In the
real world application, there has not been a
true
example of a Giffen good, though a popular albeit historically inaccurate example is the
purchase of potatoes (an inferior good) as prices continued to increase during the Irish
potato famine.
Veblen goods
Some expensive commodities like diamonds, expensive cars, designer clothing and other
high­price limited items, are used as status symbols to display wealth. The more expensive
these commodities become, the higher their value as a status symbol and the greater the
demand for them. The amount demanded of these commodities increase with an increase in
their price and decrease with a decrease in their price. These goods are known as a Veblen
goods.