What are examples of the law of demand?
When gas prices rise, drivers buy fewer gallons. When a cafe raises a latte from 5 to 6 dollars, it sells fewer lattes. When a coat goes on sale, more coats sell. Each shows the law of demand: a higher price lowers quantity demanded, a move along the curve, not a fall in demand.
The law of demand says that, holding everything else constant, a higher price lowers the quantity buyers purchase and a lower price raises it. One wording point matters before the examples. A price increase does not decrease demand; it decreases quantity demanded, which is a movement up along the same demand curve. A decrease in demand means the whole curve shifts left, and only a non-price factor such as income or tastes can do that. The examples below are written the way an exam expects.
Five examples of a price increase followed by a fall in quantity demanded, all with made-up numbers: (1) Gasoline rises from 3.50 to 4.50 dollars a gallon, and a commuter cuts weekly purchases from 15 gallons to 13 by combining errands and carpooling. (2) A movie theater raises tickets from 12 to 15 dollars, and Friday attendance falls from 400 to 340. (3) A cafe raises a latte from 5 to 6 dollars, and daily sales fall from 200 to 170 as some customers switch to drip coffee or brew at home. (4) A streaming service raises its monthly price and some subscribers cancel or share an account with a friend instead. (5) A city adds a tax that raises the price of soda, and shoppers buy fewer bottles and more water. In every case only the good's own price changed.
The law runs in the other direction too. A store cuts a winter coat from 120 to 80 dollars and sells more coats than it did at full price. An airline lowers fares on a slow weekday and more leisure travelers book. Lower price, higher quantity demanded, a movement down along the curve. Gasoline shows that the size of the response varies: drivers cut back only a little because they have few quick substitutes, while the latte drinkers cut back more. Using the midpoint method on the latte example, quantity falls by 30 divided by 185, about 16.2 percent, while price rises by 1 divided by 5.5, about 18.2 percent, so the price elasticity is about 0.89. Try the midpoint method calculator on the other examples.
Each example works through the same three forces. The substitution effect: a pricier latte looks worse next to drip coffee. The income effect: a higher gas price leaves less of a fixed budget for everything, including gas. Diminishing marginal utility: buyers pay a high price only for the units they value most, so they drop the extra ones when the price climbs. The law of demand guide explains each force in depth.
Watch for cases that look like examples but are not. If tea gets cheaper and people buy fewer lattes at the same 5 dollar price, demand for lattes fell because the price of a substitute changed; that is a shift. If playoff ticket prices rise and more tickets still sell, demand shifted right; the law of demand was not broken, because the price rose as a result of higher demand. True exceptions, such as a Giffen good, are rare. The change in demand vs change in quantity demanded entry sets out the difference, and the shifters cheat sheet lists what shifts the curve.
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Related questions
- What are five examples of price increases and then demand decreases?
- Strictly, each is a fall in quantity demanded (a move along the demand curve), not a fall in demand. Gas rises and drivers buy fewer gallons; movie tickets rise and attendance falls; a latte rises and the cafe sells fewer; a streaming price rises and subscribers cancel; a soda tax raises the price and shoppers buy fewer bottles.
- Does a price increase decrease demand?
- No. A price increase decreases quantity demanded, which is a movement along the existing demand curve. Demand itself decreases, shifting the curve left, only when a non-price factor changes, such as lower income, a change in tastes, or a cheaper substitute.
- Are there exceptions to the law of demand?
- Rarely. A Giffen good, a staple that takes up so much of a poor household's budget that a price rise makes it buy more, and a Veblen good, a liquxury bought partly because it is expensive, are the textbook cases. Treat them as exceptions, not the rule.