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Importance of Law of Demand

Importance of Law of Demand:

  • Determination of price. The study of law of demand is helpful for a trader to fox up the price of a commodity. He knows how much demand will fall by increase in price to a particular level and how much it will rise by decrease in price of the commodity. The schedule of market demand can provide the information about total market demand at different prices. It helps the management in deciding whether how much increase or decrease in the price of commodity is desirable.
  • Importance to Finance Minister. The study of this law is of great advantage to the finance minister. If by raising the tax the price increase to such an extent than the demand is reduced considerably. And then it is of no use to raise the tax, because revenue will almost remain in the same. The tax will be levied at a higher rate only on those goods whose demand is not likely to fall substantially with the increase in price.
  • Importance to the Farmers. Good or bad crop affects the economic condition of the farmers. If a good crop fails to increase the demand, the price of the crop will fall heavily. The farmer will have no advantage of the good crop and vice- versa.

Summing up we can say that the limitations or exceptions of the law of demand stated above do not falsify the general law. It must operate.


Individual’s Demand for a Commodity:

Definition and Explanation:

“The individual demand for a commodity is the amount of a commodity which the consumer is willing to purchase at any given price over a specified period of time”.

The individual’s demand for a commodity varies inversely with price(Ceteris paribus). As the price of a goods rises, other things remaining the same, the quantity demanded increase.

Here price(p) is an independent variable and quantity is (q) dependent variable.