Relationship Between Price And Quantity Demanded Of A Commodity
Relationship in this context implies what happens to a variable (i.e., quantity bought) when the other (i.e., price) changes and vice versa.
From the law of demand, it is observed that an inverse or negative relationship exist between price and quantity demanded of a product. That is “other things being equal, more of a commodity is bought by consumers at a lower price whilst less of the commodity is bought at a higher price”
Presentation of The Relationship Between Price And Quantity Demanded
To present the relationship between price and quantity bought, the following could be used.
• Demand schedule
• Demand curve
• Demand function
Other things being equal (that is, the Ceteris Paribus assumption)
Emphasizing the Ceteris paribus assumption when stating the law of demand indicates that “other things are held constant”. This is necessary because price is not the only thing that affects acquisitions. There are many others that affect purchases and income levels of consumers is one of them. Concurrently, if the price of a product is changing and income levels of customers is also changing, it would be difficult to know whether the change in quantity bought is due to a change in the price or to a change in the income. Therefore, income levels of consumers as well as other factors that could affect the quantity of a product bought are held constant except the price of the product under study. In summary, holding all other things equal obviously implies holding prices of other goods, tastes, advertising, etc. constant when stating the law. Implicitly, the concentration is on the price change of the product under study relative to all other prices. The price that is paid for a product at any time is the absolute or nominal price. Consumers buying decision however depends on relative not absolute price.
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Demand is the quantities of a product that consumers are willing and able to purchase at various prices during a specific period of time.
Demand is a desire that is backed by the willingness and ability to pay for the product. when a want is backed by purchasing power it results in effective demand.
Want can be called ineffective demand and demand is same as effective demand
Want is the desire for a commodity which is not backed by ability to pay
Price is the value of an economic good in terms of money or the amount paid for a good or a service. The relative price of a product is its price compared to that of other products.
Quantity demanded of a product implies the number of the product that is bought at a particular price.
The Law of Demand
The term “Law” in economics, mostly refer to a fundamental principle or rule that describes a regularity or pattern observed in economic behaviour or relationship.
The law of demand states that “other things being equal, at a higher price of a product, less quantity will be bought and at a lower price, a greater quantity is acquired”.
