WHAT IS DEMAND?

The demand for a good that the consumer chooses, depends on the price of it, the prices of other goods, the consumer’s income and her tastes and preferences. Whenever one or more of these variables change, the quantity of the good chosen by the consumer is likely to change as well. If the prices of other goods, the consumer’s income and her tastes and preferences remain unchanged, the amount of a good that the consumer optimally chooses, becomes entirely dependent on its price. The relation between the consumer’s optimal choice of the quantity of a good and its price is called the demand function.

The law of demand describes an inverse relationship between price and quantity demanded of a good. If the price of the good increases, then the demand falls, because the consumer is usually reluctant to spend more and more money on her purchase. If the price of the good decreases, the demand for the good increases because with price being less, the consumer prefers to buy the good.

Law of Demand, along with Law of Supply is used to explain how market economies allocate resources and determine the prices of goods and services in everyday transactions.