What Is the Law of Demand?

Under the condition that other conditions remain unchanged, the relationship between the demand for the commodity and the price changes in the opposite direction, that is, the price increases, the demand decreases; the price decreases, and the demand increases.

Law of demand

People buy goods with a purchase budget (represented as demand), and the purchase budget is based on income or wealth. When the purchase budget is limited to a certain range, there will be events in which demand and prices change in the opposite direction. The so-called other conditions remain unchanged, which can be attributed to the limited purchase budget.

Suppose the purchase budget is m, the price is P, and the demand is Q.

The conclusion of the law of demand is that demand and price change in opposite directions. Expressed in differential form: dQ / dP is less than 0.

Define price demand elasticity as Ed = (dQ / Q) / (dP / P)

Define price budget elasticity as Em = (dm / m) / (dP / P)

Considering m = PQ or dm / m = dP / P + dQ / Q

Can be launched: Em = 1 + Ed

If Em is less than 1, there is Ed less than 0.

That is: (dQ / Q) / (dP / P) is less than 0.

Available: dQ / dP is less than 0.

Therefore, a price budget elasticity Em of less than 1 is a sufficient condition that dQ / dP is less than 0.

If dQ / dP is less than 0, you can also infer that Em is less than 1.

Therefore, a price budget elasticity Em of less than 1 is a necessary and sufficient condition for dQ / dP to be less than 0.

If the price budget elasticity Em is greater than 1, the product is embodied as a Giffen product, that is, dQ / dP is greater than 0.

If the price budget elasticity is less than 1, then there is a change in demand and price in the opposite direction: when the price increases, the demand decreases; when the price decreases, the demand increases.

The law of needs has confirmed the necessary and sufficient conditions for its establishment. There is no error in mathematical logic, which belongs to theorems and does not require empirical proof. If you find that the purchase of a product and the price change in the opposite direction in real life, the product is considered to be a product that meets the law of demand.

People generally use the demand curve to represent the law of demand. The demand curve has two shapes: straight and curved.

The linear demand curve equation is: Q = a-bP, Q demand, P price, a, b constant.

The curve demand curve equation is: lnQ = lna-blnP, Q demand, P price, and a and b constants. b is the absolute value of the price demand elasticity Ed (Note: Ed is negative). The condition for this equation to be true is that the price demand elasticity Ed is constant. This equation can also be expressed by a power function equation: Q = aP (-b) (-b is a power).