Introduction

In economic terminology the term demand conveys a wider and definite meaning than in the ordinary usage. Ordinarily demand means a desire, whereas in economic sense it is something more than a mere desire. It is interpreted as a want backed up by the - purchasing power. Further demand is per unit of time such as per day, per week etc. moreover it is meaningless to mention demand without reference to price. Considering all these aspects the term demand can be defined in the following words, Demand for anything means the quantity of that commodity, which is bought, at a given price, per unit of time.

Hypothesis
Think of demand as your willingness to go out and buy a certain product. For example, market demand is the total of what everybody in the market wants. Businesses often spend a considerable amount of money in order to determine the amount of demand that the public has for its products and services. Incorrect estimations will either result in money left on the table if its underestimated or losses if its overestimated. An economic principle that describes a consumers desire and willingness to pay a price for a specific good or service. Holding all other factors constant, the price of a good or service increases as its demand increases and vice versa.

Methodology The sources for this paper are the books, journals, reporters available in the University Five Year Law College library. The online libraries and resources from the internet have also been used. Hence the research is doctrinal in nature.

Law of Demand
Demand for a commodity is related to price per unit of time. It is the experience of every consumer that when the prices of the commodities fall, they are tempted to purchase more. Commodities and when the prices rise, the quantity demanded decreases. There is, thus, inverse relationship between the price of the product and the quantity demanded. The economists have named this inverse relationship between demand and price as the law of demand. Statement of Law:Some well known statements of the law of demand are as under: According to Prof. Samuelson: "The law of demand states that people will buy more at lower prices and buy less at higher prices, other things remaining the same". E. Miller writes: "Other things remaining the same, the quantity demanded of a commodity will be smaller at higher market prices and larger at lower market prices". "Other things remaining the same, the quantity demanded increases with every fall in the price and decreases with every rise in the price". In simple we can say that when the price of a commodity rises, people buy less of that commodity and when the price falls, people buy more of it ceteris paribus (other things remaining the same). Or we can say that the quantity varies inversely with its price. There is no doubt that demand responds to price in the reverse direction but it has got no uniform relation between them. If the price of a commodity falls by 1%, it is not necessary that may also increase by 1%. The demand can increase by 1%, 2%, 10%, 15%, as the situation demands. The functional relationship between demanded and the price of the commodity can be expressed in simple mathematical language as under:

Formula and Schedule of Law of Demand

Formula of law of demand dx = f (Px, M, Po, T,..........) Here: Qdx = A quantity demanded of commodity x. f = A function of independent variables contained within the parenthesis. Px = Price of commodity x. Po = Price of the other commodities. T = Taste of the household. The bar on the top of M, Po, and T means that they are kept constant. The demand function can also be symbolized as under: Qdx = f (Px) ceteris paribus Ceteris Paribus. In economics, the term is used as a shorthand for indicating the effect of one economic variable on another, holding constant all other variables that may affect the second variable.

Schedule of Law of Demand:

The demand schedule of an individual for a commodity is a Iist or table of the different amounts of the commodity that are purchased the market at different prices per unit of time. An individual demand schedule for a good say shirts is presented in the table below: Individual Demand Schedule for Shirts: (In Dollars) Price per shirt 100 80 60 40 20 10

Quantity demanded per year Qdx

10

15

20

30

According to this demand schedule, an individual buys 5 shirts at $100 per shirt and 30 shirts at $10 per shirt in a year. Demand Schedule: The table showing the data of price and quantity demanded of a commodity. Market Demand Schedule: When we add up the various quantities demanded by the number of consumers in the market, the table we get is called Market Demand Schedule Demand Curve: The curve obtained by plotting demand schedule on a graph paper

Law of Demand Curve/Diagram

The law of demand and it's application to fundamental analysis of commodities rests upon an understanding of consumer behaviour. The factors which characterize consumer choice, and how individual consumer responses are reflected in the market place are key components of this economic theory. Understanding what factors have affected demand in the past will help to develop expectations about demand in the future and the impact on market price. Demand for a particular product or service represents how much people are willing to purchase at various prices. Thus, demand is a relationship between price and quantity, with all other factors remaining constant. Demand is represented graphically as a downward sloping curve with price on the vertical axis and quantity on the horizontal axis ( figure 1) Generally the relationship between price and quantity is negative. This means that the higher is the price level the lower will be the quantity demanded and, conversely, the lower the price the higher will be the quantity demanded. Market demand is the sum of the demands of all individuals within the marketplace. Market demand will be affected by other variables in addition to price, such as various value added services including handling, packaging, location, quality control, and financing. Thus the demand for an agricultural commodity is typically derived from the demand for a finished product. It is important for you to understand that a free market economy is driven not by producers but by consumers. Ultimately the market value for any good or service is determined by its value to the consumer. Higher prices mean higher profits and higher profits provide you with the incentive and the means to expand production of those goods and services that consumers value the most. So profit driven expansion is the market's response to stronger buyer demand. On the other hand, when consumers are unwilling to buy what is offered at the current price, the seller will have to lower the price ultimately resulting in lower profits or losses to you the producer. Losses reduce the producer's incentive to produce things that have weak demand which will ultimately force production cuts as farmers lose more and more money.

This is the discipline of the marketplace. Those who produce things that consumers are willing and able to buy are rewarded. Those who produce things that consumers don't want or can't buy are penalized. Farmers must produce for the markets. They cannot expect to find or create a profitable market for whatever they choose to produce.

Determents of law of demand

The determinants of demand have been explained in brief as follows:

1. Price: The price of a commodity is an important determinant of demand. price and demand are inversely related. Higher the price less is the demand and vice versa. 2. Price of related goods:

The price of related goods like substitutes and complementary goods also affect the demand. In the case of substitutes, rise in price of one commodity lead to increase in demand for its substitute. In the case of complementary goods, fall in the price of one commodity lead to rise in demand for both the goods. 3. Income: This is directly related to demand. If the disposable income increases, demand will be more. 4. Taste, preference, fashions and habits:

The tastes, habits, likes, dislikes, prejudices and preference etc. of the consumer have a profound effect on the demand for a commodity. If a consumers dislikes a commodity, he will not buy it despite a fall in price. On the other hand a very high price also may not stop him from buying a good if he likes it very much.Other Prices: This is another important determinant of demand for a commodity. The effects depends upon the relationship between the commodities in question. If the price of a complimentary commodity rises, the demand for the commodity in reference falls. E.g. the demand for petrol will decline due to rise in the price of cars and the consequent decline in their demand. Opposite effect will be experienced incase of substitutes.

5. Population: The size of population also affects the demand. The relationship is a direct one. The higher the size of population, the higher is the demand and vice versa. 6. Money Circulation:

More money in circulation, more will be the demand and vice versa. 7. Weather Condition:

It is also an important factor to determine the demand for certain goods. 8. Advertisement and Salesmanship:

If the advertisement is very attractive for a commodity, demand will be more and if the salesmanship and publicity is effective then the demand for the commodity will be more. 9. Speculation: If the consumers expect a change in price in near future then their present demand will not vary inversely with the present change in price. 10. Government policy:

High taxes will increase the price and and reduce demand, while low tax will reduce the price and extend the demand. 11. Fashions: Hardly anyone has the courage and the desire to go against the prevailing fashions as well as social customs and the traditions. This factor has a great impact on the demand. 12. Imitation: This tendency is commonly experienced everywhere. This is known as the demonstration effects, due to which the low income groups imitate the consumption patterns of the rich ones. This operates even at international levels when the poor countries try to copy the consumption patterns of rich countries.

Assumptions, exceptions and limitations to law of demand

Assumptions While expressing the law of demand, the assumptions that other conditions of demand were unchanged. If remain constant, the inverse relation may not hold well. In other words, it is assumed that the income and tastes of consumers and the prices of other commodities are constant. This law operates when the commoditys price changes and all other prices and conditions do not change. The main assumptions are

Habits, tastes and fashions remain constant. Money, income of the consumer does not change. Prices of other goods remain constant. The commodity in question has no substitute or is not competed by other. The commodity is a normal good and has no prestige or status value. People do not expect changes in the prices. Price may independent

Exceptions Sometimes, we find that with a fall in the price demand also falls and with a rise in price demand also rises. These cases are referred to as exceptions to the general law of demand. The demand curve in these cases will be an upward sloping. Some of these exceptions are:

Giffen goods or Inferior goods. 1. Prestige goods 2. Speculation 3. Price Illusion

These different types of exceptions are described in brief explanation as follows:-

1. Inferior goods:

Some goods like potato, bread, vegetable oil etc. are called inferior goods. In the case of these goods when their price falls, the real income or the purchasing power of the consumer increases, this purchasing power is used to buy other superior goods. Such inferior goods are named as 'Giffen goods'. An Irish economist Sir Robert Giffen observed this tendency of the individuals in the 19th century. 2. Expectations and speculations:

When people expect a rise or fall in price in the near future, the law of demand does not hold good. If a price rise is expected by next week, then they will buy more now itself though at present the prices are quite high. 3. Prestige goods:

Rich people like to show off their economic status. SO they buy prestige goods like colour T.V., diamond etc. even at a higher price. 4. Price illusion:

There are certain consumers those who are always guided by the price of the commodity. They always believe that higher the price, better the quality. Hence they purchase larger quantities of high priced goods. 5. Demonstration effect:

It refers to a tendency of low income groups to imitate the consumption pattern of high income groups. They will buy a commodity to imitate the consumption of their neighbors even if they don't have the purchasing power. 6. Ignorance: Sometimes due to ignorance of existing market price, and people buy more at a higher price.

7. Quality and Branded Goods:

Commodities of good standard and quality give proper value for money. They last long and give good service. So people prefer to buy them even at a higher price.

In the above exceptional cases, the demand graph curve slopes upward showing a positive relationship between price and demand. Limitations:

Change in taste or fashion. Change in income Change in other prices. Discovery of substitution. Anticipatory change in prices. Rare or distinction goods.[1]

There are certain goods which do not follow this law. These include luxurious goods and Giffen goods.

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Variation & Changes in Demand

The law of demand explains the effect of only-one factor viz., price, on the demand for a commodity, under the assumption of constancy of other determinants. In practice, other factors such as, income, population etc. cause the rise or fall in demand without any change in the price. These effects are different from the law of demand. They are termed as changes in demand in contrast to variations in demand which occur due to changes in the price of a commodity. In economic theory a distinction is made between (a) Variations i.e. extension and contraction in demand due to price and (b) Changes i.e. increase and decrease in demand due to other factors. (a) Variations in demand refer to those which occur due to changes in the price of a commodity. These are two types. 1. Extension of Demand: This refers to rise in demand due to a fall in price of the commodity. It is shown by a downwards movement on a given demand curve. 2. Contraction of Demand: This means fall in demand due to increase in price and can be shown by an upwards movement on a given demand curve. (b) Changes in demand imply the rise and fall due to factors other than price. It means they occur without any change in price. They are of two types. 1. Increase in Demand: This refers to higher demand at the same price and results from rise in income, population etc., this is shown on a new demand curve lying above the original one.

2. Decrease in demand: It means less quantity demanded at the same price. This is the
result of factors like fall in income, population etc. this is shown on a new demand lying below the original one.

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Fig (A) Extension/Contraction of Demand Fig (B) Increase/Decrease in Demand In figure A, the original price is OP and the Quantity demanded is OQ. With a rise in price from OP to OP1 the demand contracts from OQ to OQ1 and as a result of fall in price from OP to OP2, the demand extends from OQ to OQ2.

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In figure, B an increase in demand is shown by a new demand curve, D1 while the decrease in demand is expressed by the new demand curve D2, lying above and below the original demand curve D respectively. On D1 more is demand (OQ1) at the same price while on D2 less is demanded (OQ2) at the same price OP.

Conclusion
(i) Determination of price. The study of law of demand is helpful for a trader to fix the price of a commodity. He knows how much demand will fall by increase in price to a particular level and how much it will rise by decrease in price of the commodity. The schedule of market demand can provide the information about total market demand at different prices. It helps the management in deciding whether how much increase or decrease in the price of commodity is desirable.

(ii) Importance to Finance Minister. The study of this law is of great advantage to the finance minister. If by raising the tax the price increases to such an extend than the demand is reduced considerably. And then it is of no use to raise the tax, because revenue will almost remain the same. The tax will be levied at a higher rate only on those goods whose demand is not likely to fall substantially with the increase in price.

(iii) Importance to the Farmers. Goods or bad crop affects the economic condition of the farmers. If a goods crop fails to increase the demand, the price of the crop will fall heavily. The farmer will have no advantage of the good crop and vice-versa.

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Bibliography

1. Myneni, S.R. General Principals of Economics, ALA, 4th ed, 2011 2. Satija, Dr. Kalpana, Economics for law Students, ULP, 2009

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