Q.State the Law of Demand. What are its main assumptions?

A demand schedule is a table showing the various quantities of a good that would be demanded at various prices, other things being equal; it can relate to a single consumer (individual demand schedule) or to all consumers in the market (market demand schedule), and it normally shows quantity rising as price falls.

Meaning

A demand schedule is a tabular statement showing how much of a commodity consumers are willing to buy at each of a series of prices in a given period, assuming other factors remain unchanged.

• An individual demand schedule shows the quantities demanded by one consumer at different prices.
• A market demand schedule shows the total quantities demanded by all consumers in the market at different prices.

A typical demand schedule shows that as the price falls the quantity demanded rises, and as the price rises the quantity demanded falls, which illustrates the law of demand. The demand schedule is the basis for drawing the demand curve.

This concept in the AP Intermediate 1st-year Economics course aligns with the demand-theory content of the NCERT/CBSE curriculum.

The Giffen paradox is an exception to the law of demand in which the demand for a strongly inferior good (a Giffen good) rises when its price rises and falls when its price falls — contrary to the usual inverse price-quantity relationship.

Meaning

The Giffen paradox is named after Sir Robert Giffen, who observed it among very poor English workers in the case of a basic inferior food (such as cheap bread). He found that:

• when the price of the inferior staple rose, poor consumers bought more of it, and
• when its price fell, they bought less of it.

This happens because the inferior good takes up a large part of a poor consumer's budget. When its price rises, the consumer becomes so much poorer in real terms that he cannot afford costlier substitutes (like meat or better food) and is forced to buy even more of the cheap staple. Such goods are called Giffen goods, and the paradox is a well-known exception to the law of demand.

The law of supply states that, other things being equal, the quantity supplied of a good varies directly (positively) with its price — more is supplied at a higher price and less at a lower price, so the supply curve slopes upward.

Meaning

The law of supply states that, other things remaining constant (ceteris paribus), the quantity supplied of a commodity is directly (positively) related to its price:

• when the price rises, producers supply more, and
• when the price falls, producers supply less.

Reason and shape

A higher price means higher profits, so producers are willing to offer more for sale; a lower price reduces profit, so they supply less. Because of this direct relationship the supply curve slopes upward from left to right. The 'other things' held constant include the cost of production, technology, prices of related goods and the goals of the producer.