Law of Demand
What is Law of Demand?
The law of demand states that quantity demanded falls when price rises, holding all else constant.
The law of demand describes the inverse relationship between price and quantity demanded. When the price of a good rises, consumers are willing and able to buy less of it. Conversely, when the price falls, consumers are willing and able to buy more. This holds true as long as other factors like income and preferences remain constant.
Law of Demand: a worked example
A campus theater posts a weekly demand schedule for tickets: at $8 buyers want 500, at $10 they want 400, and at $12 they want 300. Every $2 step up in price strips 100 tickets off quantity demanded, so the schedule slopes downward exactly as the law of demand predicts. The slope drawn on a graph is the price change over the quantity change, $2 divided by 100 tickets, or $0.02 per ticket, carrying a negative sign because price and quantity move in opposite directions. Total revenue does not follow one pattern here: $8 x 500 = $4,000, $10 x 400 = $4,000, and $12 x 300 = $3,600. Revenue held steady on the first step and fell on the second, while quantity demanded fell on both steps, which is the only claim the law of demand actually makes.
The mistake students make with law of demand
The tempting error is writing that price rose, so demand fell. It sounds right because fewer tickets get bought, and the words demand and quantity demanded feel interchangeable. A change in the good's own price moves you between two points on a fixed demand curve, so only quantity demanded changes. Demand itself shifts only when a non-price determinant moves: income, the price of a substitute or complement, tastes, expectations, or the number of buyers. On a free response, write movement along the demand curve whenever the good's own price is what changed.
Law of Demand questions
Why does the demand curve slope downward?
Two effects push quantity demanded up as price falls. The substitution effect makes the cheaper good more attractive relative to its alternatives, so buyers swap toward it. The income effect raises real purchasing power, since the same budget now stretches further and lets buyers afford more units. Diminishing marginal utility reinforces both, because each additional unit delivers less satisfaction, so a buyer takes another one only at a lower price.
What is the difference between a change in demand and a change in quantity demanded?
A change in quantity demanded is movement between two points on the same demand curve, triggered only by the good's own price. A change in demand is a shift of the entire curve, triggered by income, the price of a related good, tastes, expectations, or the number of buyers. Exam rubrics award points for the correct wording, so identify the cause first and then choose the phrase that matches it.
Are there exceptions to the law of demand?
Textbooks name two candidates. Veblen goods are bought partly for status, so a higher price can signal exclusivity and raise quantity demanded. Giffen goods are strongly inferior staples where a price increase cuts real income so sharply that buyers purchase more of the staple and less of everything else. Both require unusual conditions and appear rarely on AP exams, where the law of demand is treated as holding.
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