Assumptions of Law of Demand (7 Points) | Free Economic Blogs
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Assumptions of Law of Demand
Meaning of Demand
In ordinary language, demand means a desire. Desire means an urge to have something.
In Economics, demand means a desire which is backed by a willingness and ability to pay.
For example, if a person has the desire to purchase a television set but does not have adequate purchasing power then it will be simply a desire and not a demand.
Thus, demand is an effective desire. All desires are not demand.
In short,
Demand = Desire + Willingness to Purchase + Ability to Pay.
- Microeconomic Definition | Historical Review of Microeconomics
- Scope Or Nature of Microeconomics
- Features of Microeconomics
- Importance of Microeconomics
Definition of Demand
According to Benham, “the demand for anything at a given price is the amount of it, which will be bought per unit of time at that price.”
Thus, following are the features of demand :
1) Demand is a relative concept.
2) Demand is essentially expressed with reference to time and price.
What is Law of Demand? Click Here to Read
Assumptions of Law of Demand
1) Constant level of income
If the law of demand is to find true operate then, consumers’ income should remain constant. If there is a rise in income, people may demand more at a given price.
2) No change in size of population
It is assumed that the size of population remains unchanged. Any change in the size and composition of population of a country affects the total demand for the product.
3) Prices of substitute goods remain constant
It is assumed that the prices of substitutes remain unchanged. Any change in the price of the substitute will affect the demand for the commodity.
4) Prices of complementary goods remain constant
It is assumed that the prices of complementary goods remain unchanged because a change in the price of one good will affect the demand for the other.
5) No expectations about future changes in prices
It is assumed that consumers do not expect any further change in price in the near future. If consumers expect a rise in prices in future, they may demand more in the present even at existing high price.
6) No change in tastes, habits, preferences, fashions etc.
It is assumed that consumers’ tastes, habits, preferences, fashions etc. should remain unchanged. Any change in these factors will lead to a change in demand.
7) No change in taxation policy
Taxation policy of the government has a great impact on demand for various goods and services. Therefore, it is assumed that there is no change in the policy of taxation declared by Government.
- There are certain exceptions to the law of demand. (Click Here to read)
