# Law Of Demand

In this section, we begin to look at the law of demand which indicates that a negative relationship exists between the price of a good or service and the quantity demanded of it.

After you have worked through this section of the learning unit, you should be able to:

• describe this negative relationship between the price and quantity demanded in words and with the aid of a chain of events

It is summer, you like ice cream and have some money in your pocket to buy ice cream.

### If the price of ice cream increases will you tend to buy more or less ice cream than before the decrease in the price of ice cream?

Most of us with limited income will probably buy less if the price increases and more if the price decreases.

Economists are so confident about the relationship between the price of a good or service and the quantity demanded that they have given it the status of a law, namely the law of demand.

The law of demand states the following:

The higher the price of a good or service (all other things remaining the same), the lower the quantity demanded will be, OR the lower the price of a good or service (all other things remaining the same), the greater the quantity demanded will be.

We can therefore expect that if the price of a good or service increases, people intend buying less of it, and if the price decreases they intend buying more of it, ceteris paribus.

The law can also be expressed in terms of a chain of events as follows:

### ↑Px →↓ Qd

An increase in the price of a good or service leads to a decrease in the quantity demanded.

### ↓ Px →↑Qd

A decrease in the price of a good or service leads to a increase in the quantity demanded.

This is known as an inverse or negative relationship.

A negative or inverse relationship indicates that as the one variable (in this case, price) goes down, the other variable goes up (in this case, the quantity demanded).

#### ↓Px →  ↑Qd

The opposite is also true: If the one variable (in this case, price) goes up, the other variable goes down (in this case, the quantity demanded).

### Now watch the following video to see a demonstration of the law of demand.

Do the following activity dealing with the relationship between the price of a good and service and the quantity demanded.

### The law of demand represents the relationship between the _______ and the ______

Think again.

The law of demand states the following:

The higher the price of a good or service (all other things remaining the same), the lower the quantity demanded will be, OR the lower the price of a good or service (all other things remaining the same), the greater the quantity demanded will be.

Think again.

The law of demand states the following:

The higher the price of a good or service (all other things remaining the same), the lower the quantity demanded will be, OR the lower the price of a good or service (all other things remaining the same), the greater the quantity demanded will be.

Think again.

The law of demand states the following:

The higher the price of a good or service (all other things remaining the same), the lower the quantity demanded will be, OR the lower the price of a good or service (all other things remaining the same), the greater the quantity demanded will be.

Correct.

The law of demand represents the relationship between the price of a good or service and the quantity demanded.

### Indicate if the following statements are true or false:

The law of demand states that a _____

a. higher price leads to a higher quantity demanded for the good, ceteris paribus

Think again.

A higher price does not lead to a higher quantity demanded.

The statement is indeed false since a higher price does not lead to a higher quantity demanded

b. lower price leads to a lower quantity demanded for the good, ceteris paribus

Think again.

A lower price does not lead to a lower quantity demanded.

The statement is indeed false since a lower price does not lead to a lower quantity demanded

c. lower price leads to a higher quantity demanded for the good, ceteris paribus

The statement is indeed true.

As the price of a good or service decreases people tend the demand a higher quantity.

Think again.

As the price of a good or service decreases people tend the demand a higher quantity.

d. higher price leads to a lower quantity demanded for the good, ceteris paribus

The statement is indeed true.

As the price of a good or service increases people tend to demand a lower quantity.

Think again.

As the price of a good or service increases people tend the demand a lower quantity.

d. change in the price has no impact on the quantity demanded

Think again.  It does have an impact.

The law of demand states the following:

The higher the price of a good or service (all other things remaining the same), the lower the quantity demanded will be, OR the lower the price of a good or service (all other things remaining the same), the greater the quantity demanded will be.

The statement is indeed false.

The law of demand states the following:

The higher the price of a good or service (all other things remaining the same), the lower the quantity demanded will be, OR the lower the price of a good or service (all other things remaining the same), the greater the quantity demanded will be.

### Which of the following chain of events is part of the law of demand?

a. ↑Px → ↓Qd

It indeed represents the law of demand since the law of demand states that a higher price (↑Px) leads to a lower quantity demanded (↓Qd), ceteris paribus.

Think again.

It indeed represents the law of demand since the law of demand states that a higher price (↑Px) leads to a lower quantity demanded (↓Qd), ceteris paribus.

b. ↓Px → ↓Qd

Think again.

It does not represent the law of demand since the law of demand states that a lower price (↓Px) leads to a higher quantity demanded (↑Qd), ceteris paribus.

It indeed does not represent the law of demand since the law of demand states that a lower price (↓Px) leads to a higher quantity demanded (↑Qd), ceteris paribus.

c. ↑Px → ↑Qd

Think again.

It does not represent the law of demand since the law of demand states that a higher price (↑Px) leads to a lower quantity demanded (↓Qd), ceteris paribus.

It indeed does not represent the law of demand since the law of demand states that a higher price (↑Px) leads to a lower quantity demanded (↓Qd), ceteris paribus.

d. ↓Px → ↑Qd

It indeed represent the law of demand since the law o demand states that a lower price (↓Px) leads to a higher quantity demanded (↑Qd), ceteris paribus.

Think again.

It does represent the law of demand since the law o demand states that a lower price (↓Px) leads to a higher quantity demanded (↑Qd), ceteris paribus