A basic “law’ of economics is that when the price of a good rises, people demand less of it, and when the price falls people buy more.

The law of demand states that, “conditional on all else being equal, as the price of a good increases (↑), quantity demanded decreases (↓); conversely, as the price of a good decreases (↓), quantity demanded increases (↑)“. In other words, the law of demand describes an inverse relationship between price and quantity demanded of a good1.

Although this prediction is a fairly robust one, like any law stated in the abstract, assumptions are used that may not always hold up in practice. For example, a showroom slashing the price of its cars might lead to queues around the block. But what if people were unsure about the quality of the cars? A lower price might signal that the cars were of low quality, leading to fewer, not more buyers.



In addition, there are other factors beyond the price of a good that can affect demand for it: consumer tastes might alter or changes in the price of goods that are close substitutes for it might affect demand. There are some special kinds of goods, such as goods which are consumed in order to display one’s wealth (so-called conspicuous consumption) for which demand may actually increase when the price goes up.


  1. https://en.wikipedia.org/wiki/Law_of_demand#cite_note-:0-1