Assumptions of the Law of Demand

The inverse price-quantity relationship the Law of Demand describes holds good only so long as a set of other conditions are genuinely held constant. The Maharashtra HSC (MSBSHSE) Economics syllabus lists the principal assumptions on which the law rests:

• No change in the consumer's income. If income itself changes at the same time as price, the resulting change in quantity demanded cannot be attributed to price alone.
• No change in the prices of related goods (substitutes and complements) — a simultaneous fall in the price of a substitute would itself raise or lower demand for the commodity, confusing the picture.
• No change in tastes, preferences or fashion — the consumer's liking for the commodity, relative to other goods, is assumed unchanged.
• No change in the size or composition of population — the number of potential buyers is assumed fixed.
• No change in the distribution of income in society.
• No change in the consumer's expectations regarding future prices — the buyer is not currently purchasing more (or less) purely because a further price rise (or fall) is expected.
• No change in government policy — the tax or subsidy treatment of the commodity is assumed unchanged.
• The commodity has no prestige or snob value — its price must not, by itself, be read by the buyer as a signal of status. This assumption specifically rules out Veblen or prestige goods, taken up later in this chapter as an exception.
• No new substitute enters the market, and the commodity is not one for which the buyer has an urgent, inflexible need regardless of price. …