Write a short paragraph about demand using all of the following terms: law of demand, quantity demanded, law of diminishing marginal utility, real income effect, substitution effect, demand curve, price elasticity of demand.

Law of demand is one sided as it only explains the effect of change in price on the quantity demanded. It states nothing about the effect of change in quantity demanded on the price of the commodity.

Derivation of ‘Law of Demand’:

According to the law of demand, demand for a commodity rises with fall in its price and vice-versa, keeping other factors constant. This inverse relationship between price and demand as given by Law of demand, can be derived by: (i) ‘Marginal Utility’ = Price’ Condition; and (ii) Law of Equi-Marginal Utility.

Explanation:

It states the inverse relationship between price and quantity demanded. It simply affirms that an increase in price will tend to reduce the quantity demanded and a fall in price will lead to an increase in the quantity demanded.

2. Qualitative, not Quantitative:

It makes a qualitative statement only, i.e. it indicates the direction of change in the amount demanded and does not indicate the magnitude of change.

3. No Proportional Relationship:

It does not establish any proportional relationship between change in price and the resultant change in demand. If the price rises by 10%, quantity demanded may fall by any proportion.

4. One-Sided:Law of demand is one sided as it only explains the effect of change in price on the quantity demanded. It states nothing about the effect of change in quantity demanded on the price of the commodity.

Derivation of ‘Law of Demand’:

According to the law of demand, demand for a commodity rises with fall in its price and vice-versa, keeping other factors constant. This inverse relationship between price and demand as given by Law of demand, can be derived by: (i) ‘Marginal Utility’ = Price’ Condition; and (ii) Law of Equi-Marginal Utility.

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