Question

Define the law of demand and explain how this relates to typical human behiavior.

Answer 1

Law of demand exhibits the functional relation between goods and price. According to the theory there exits in the inverse relationship between price and goods. Higher the price lower the quantity goods demanded lower the price greater the quantity demanded by the consumers while other influencing factors held constant.

The theory explains the typical human behavior or consumers due to following factors.

1. Consumers are rational try to maximize the utility or satisfaction
2. When the price falls real income of the consumer's increase and consumers in a comfortable position in buying more goods this is known as Income effect
3. The fall in the price results in the consumer to substitute goods for each other. Since quantity becomes relatively cheaper for other goods.This effect is known as Substitution effect

Thus, the law of demand shows the consumer behavior.