The Fundamental Law of Demand

Demand is the quantity of a good or service that consumers are willing and able to purchase in a certain given time period.

The law of demand states that price has an inverse relationship with the level of demand. ie. As the price of a good decreases demand increases. This is best seen through the analysis of the following diagram.The demand curve is a downward sloping line because of diminishing marginal utility.
The extra utility from consuming more of any normal product falls, therefore consumers are less willing to pay as much for the consumption of another good.

As seen, the price of the goods and services decreases as you move along the demand curve.

"As goods get rarer, its price increases" Chinese Proverb.

The determinants of demand.

• price of the good
• price of other goods (substitute goods and complementary goods)

Substitute goods - the increase of the price of a substitute good leads to increased demand of the good identified.

Complementary goods - the increase in the price of a complementary good leads to a defcrease of demand for the good identified.

• changes in real disposable income (changes in the Fiscal and or Monetary policy/ interest rates and investment)
• availability of credit (if making loans or using credit cards is made easier or more popular demand would increase)
• expectations of the future, if consumer confidence is high or if consumers believe that supply would be scarce in the future demand would increase, leading to increasing prices
• taste changes would affect the demand as consumers tend to shop for "in" products
• advertising would increase demand of the good as more consumers would know about the good
• Seasonal Demand is affected by weather changes (example. demand for umbrellas and icecream)
• Population level would affect the level of demand (more people = more demand)