Law of Demand

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Definition of the Law of Demand:

The law of demand states that other things being equal, the price and quantity demanded of a good or service are inversely related, so as the price of a good increases, the quantity demanded decreases and vice versa.

Detailed Explanation:

What is your favorite drink? Imagine that the price of a bottle dropped 25%. Would you take advantage of the sale and want to purchase more? Now imagine that the company doubled prices. Would you substitute another drink? If not, would you purchase less of the drink at the higher prices? If you answered "Yes" to these questions you have illustrated the law of demand, which states that at higher prices consumers will purchase less of a good or service and at lower prices, consumers will purchase more of a good or service.

Dig Deeper With These Free Lessons:

Demand – The Consumer's Perspective
Supply – The Producer's Perspective
Changes in Demand – When Consumer Tastes Change
Price Elasticity of Demand – How Consumers Respond to Price Changes
Supply and Demand – Producers and Consumers Reach Agreement

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