Question

Explain the law of demand with the help of diagram. Describe any five factors that affect the demand for a commodity.

Hint:

The law of demand states that price and quantity demanded have an inverse relationship. Factors such as income, preferences, and related goods affect demand.

Answer 1

Step 1: Defining the Law of Demand:
The law of demand states that, all else being equal, the quantity demanded of a good decreases as its price increases, and vice versa. In other words, there is an inverse relationship between price and quantity demanded.
Step 2: Explanation with Diagram:
- The demand curve is typically downward sloping from left to right, reflecting the law of demand. As the price of a good rises, the quantity demanded falls, and as the price falls, the quantity demanded increases. The diagram below shows the downward sloping demand curve.
Step 3: Factors Affecting Demand:
The demand for a commodity is influenced by several factors, including: 1. Income of Consumers: As consumers' income increases, they are able to buy more goods, leading to an increase in demand. Conversely, a decrease in income leads to a decrease in demand.
2. Tastes and Preferences: Changes in consumer preferences can increase or decrease demand. For example, if a good becomes more fashionable, its demand will increase.
3. Price of Related Goods: The demand for a good can be influenced by the price of related goods. An increase in the price of a substitute good can increase the demand for the original good, while an increase in the price of a complementary good can decrease its demand.
4. Expectations about Future Prices: If consumers expect prices to rise in the future, they may increase current demand, while if they expect prices to fall, they may reduce demand.
5. Number of Consumers: An increase in the number of consumers in the market generally leads to an increase in demand, as more people are buying the good.
Step 4: Final Conclusion:
The law of demand explains the inverse relationship between price and quantity demanded. Several factors, including income, preferences, related goods, expectations, and the number of consumers, affect the demand for a commodity.