Law of Demand

The law of demand states that when the price of goods increases, consumers tend to buy less, and vice versa, assuming all other factors affecting demand remain constant.

Let's examine how a cafe owner approaches buying potatoes.

If potatoes are available for free, he collects 200 pounds because he doesn't need more.

At 1 dollar per pound, he purchases 150 pounds of potatoes.

Further, as the price increases, he doesn't buy more because it is too expensive.

This illustrates the Law of Demand, which shows the inverse relationship between price and quantity demanded.

Graphically, the law can be explained by representing the relationship between the quantity of potatoes on the X-axis and the price on the Y-axis. Here, the resulting curve, sloping downward, is the demand curve.

Any change in price causes a movement along the curve.

Understanding the demand curve is crucial to anticipate demand, analyze consumer behavior, and set prices.