Law of demand with its criticisms.

 Law of Demand...

It is one of the most well-known and most applied theory in microeconomics. It is the basis of consumption, production, exchange and distribution of goods and services. It was first introduced and developed by Alfred Marshall in his book “Principles of Economics” published in 1890 AD. It is based on functional relationship between price and quantity demanded for a particular commodity i.e Qdx=F(Px).

     According to this law, when price of a commodity decreases, quantity demanded for the commodity increases and vice versa, if other factors remaining the same. It means there is inverse relationship between price and quantity demanded for a particular commodity. According to Alfred Marshall, “The amount demanded increases with a fall in price and decreases with a rise in price, other things being equal . “

Assumptions of Law of Demand: The law of demand is based on several assumptions which may or may not be true in real life. Some of them are as follows:

1. No change in income of consumers.

2. No change in price of related commodities.

3. No change in weather and climatic conditions.

4. No change in custom, tradition and advertisement.

5. No change in taste, preference and fashion etc.

On the basis of above assumptions, the law of demand can be explained with the help of following schedule and diagram:

Demand Schedule... 

    In the above schedule, it is seen that the consumer demanded 5 kg of a commodity when the price of a commodity is Rs.10 per kg. When the price decreases from Rs.10 per kg to Rs.8 per kg ,the quantity demanded for the commodity by the consumer increases from 5 kg to 10 kg. Similarly, when the price of a commodity decreases from Rs.8 per kg to Rs.6 per kg, from Rs.6 per kg to Rs.4 per kg , Rs.4 per kg to Rs.2 per kg, the quantity demanded for the commodity increases from 10 kg to 15 kg, 20 kg and 25 kg respectively. The schedule clearly shows the inverse relationship between the price and quantity demanded for the commodity. If we present the schedule in the form of diagram, we will get the demand curve as shown in the following figure:

     In the above figure quantity demanded and price of a commodity are measured along that ‘x' and ‘y’ axis respectively. DD is the demand curve which is made by joining various corresponding points of price demand combination. The slope of the curve is negative i.e demand curve is downward sloping from left to right. It indicates that the inverse relationship between price and quantity demanded for any particular commodity in the market.

Criticisms/Limitations/Exceptions of Law of Demand...

The law of demand is based on several assumptions which may or may not be applicable in real life. The condition of demand changes along with the change in its determining factors, whatever be the price. This condition is known as criticisms/limitations/exceptions of law of demand. Some of them are as follows:

1. Judge by price: If the consumers determine the quality of goods and services on the basis of their price, they purchase more when price is higher and vice versa. It is against the principle of demand.

2. Basic goods: The law of demand isn’t applicable in the case of basic goods. Basic goods are those goods which must be consumed for the survival whatever be the price.

3. Articles of distinction/prestigious goods: There are some goods which increases the social prestige of the people in the society like gold, diamond etc. The quantity demanded for such commodities increases even if price goes on increasing. It is against the law of demand.

4. Giffen goods: The law of demand isn’t applicable in case of giffen goods. The demand for giffen goods increases when price increases and vice versa.

5. The law of demand isn’t applicable in case of change in income of consumers.

6. The law isn’t applicable in case of change in price of related commodities.

7. The law isn’t applicable in case of change in custom, tradition and fashion.

8. The law isn’t applicable in case of change in weather and climatic conditions etc.