Q.State and explain the Law of Demand. What are its main assumptions, and why does the demand curve slope downward?

The Law of Demand describes the normal inverse relationship between the price of a good and the quantity demanded of it.

Statement. The Law of Demand states that, other things remaining equal, the quantity demanded of a commodity varies inversely with its price — a fall in price raises quantity demanded and a rise in price lowers it.

Explanation with a schedule. As price falls from ₹10 to ₹8 to ₹6, a buyer purchases 20, then 30, then 45 units — price and quantity move in opposite directions. Plotted, these points give a curve sloping downward from left to right.

Assumptions (the 'other things' held equal):

• no change in the consumer's income;
• no change in the prices of related goods (substitutes and complements);
• no change in tastes, habits or fashion;
• no change in expectations of future prices.

Why the demand curve slopes downward:

1. Law of diminishing marginal utility — extra units give less satisfaction, so more is bought only at a lower price.
2. Income effect — a lower price raises the buyer's real income, enabling a larger purchase.
3. Substitution effect — a good that becomes relatively cheaper attracts buyers away from its substitutes.
4. New buyers and new uses — a lower price brings in poorer buyers and encourages additional uses.

Note on exceptions. The law fails for Giffen goods, status/ostentation goods (Veblen effect) and goods bought in anticipation of a further price rise — but these are rare and do not disprove the general rule.

Stating the law without the 'other things equal' clause; treating the exceptions as disproving the law; confusing the reasons for the downward slope with the assumptions of the law.