Question

What is law of demand? What explains the law of demand?

What is law of demand? What explains the law of demand?

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Answer #1

Law of demand = When the price of the goods in the market increase, ceteris paribus, the quantity demanded for the goods in the market falls.

Law of demand hold true because of interest rate effect, substitution effect and real balance effect. if the price of the goods increase people in the market feel poorer i.e. the real balance decrease and they demand less, similarly if the price increase people in the market switch to different goods all this reduce the demand for the goods when the price of the goods increase.

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