what is the law of demand 
the law of demand is one of the most fundamental concepts in economics alongside the law of supply it explains how market economies allocate resources and determine the prices of goods and services the law of demand states that the quantity purchased varies inversely with price in other words the higher the price the lower the quantity demanded this occurs because of diminishing marginal utility 1 that is consumers use the first units of an economic good they purchase to serve their most urgent needs first then they use each additional unit of the good to serve successively lower valued ends 2understanding the law of demandeconomics involves the study of how people use limited means to satisfy unlimited wants the law of demand focuses on those unlimited wants naturally people prioritize more urgent wants and needs over less urgent ones in their economic behavior and this carries over into how people choose among the limited means available to them for any economic good the first unit of that good that a consumer gets their hands on will tend to be used to satisfy the most urgent need the consumer has that that good can satisfy for example consider a castaway on a desert island who obtains a six pack of bottled fresh water that washes up onshore the first bottle will be used to satisfy the castaway s most urgently felt need which is most likely drinking water to avoid dying of thirst the second bottle might be used for bathing to stave off disease an urgent but less immediate need the third bottle could be used for a less urgent need such as boiling some fish to have a hot meal and on down to the last bottle which the castaway uses for a relatively low priority such as watering a small potted plant to feel less alone on the island because each additional bottle of water is used for a successively less highly valued want or need by our castaway we can say that the castaway values each additional bottle less than the one before the more units of a good that consumers buy the less they are willing to pay in terms of price similarly when consumers purchase goods on the market each additional unit of any given good or service that they buy will be put to a less valued use than the one before so we can say that they value each additional unit less and less because they value each additional unit of the good less they aren t willing to pay as much for it by adding up all the units of a good that consumers are willing to buy at any given price we can describe a market demand curve which is always sloping downward like the one shown in the chart below each point on the curve a b c reflects the quantity demanded q at a given price p at point a for example the quantity demanded is low q1 and the price is high p1 at higher prices consumers demand less of the good and at lower prices they demand more 2demand vs quantity demandedin economic thinking it is important to understand the difference between the phenomenon of demand and the quantity demanded in the chart above the term demand refers to the light blue line plotted through a b and c it expresses the relationship between the urgency of consumer wants and the number of units of the economic good at hand a change in demand means a shift of the position or shape of this curve it reflects a change in the underlying pattern of consumer wants and needs vis vis the means available to satisfy them on the other hand the term quantity demanded refers to a point along the horizontal axis changes in the quantity demanded strictly reflect changes in the price without implying any change in the pattern of consumer preferences 3changes in quantity demanded just mean movement along the demand curve itself because of a change in price these two ideas are often conflated but this is a common error rising or falling prices don t decrease or increase demand they change the quantity demanded factors affecting demandso what does change demand the shape and position of the demand curve can be affected by several factors rising incomes tend to increase demand for normal economic goods as people are willing to spend more the availability of close substitute products that compete with a given economic good will tend to reduce demand for that good because they can satisfy the same kinds of consumer wants and needs conversely the availability of closely complementary goods will tend to increase demand for an economic good because the use of two goods together can be even more valuable to consumers than using them separately like peanut butter and jelly other factors such as future expectations changes in background environmental conditions or changes in the actual or perceived quality of a good can change the demand curve because they alter the pattern of consumer preferences for how the good can be used and how urgently it is needed 3law of supplysupply is the total amount of a specific good or service that is available to consumers at a certain price point as the supply of a product fluctuates so does the demand which directly affects the price of the product the law of supply then is a microeconomic law stating that all other factors being equal as the price of a good or service rises the quantity that suppliers offer will rise in turn and vice versa when demand exceeds the available supply the price of a product typically will rise conversely should the supply of an item increase while the demand remains the same the price will go down 4