What is demand?
Demand is defined as want or willingness of consumers to buy goods and services.
In economics willingness to buy goods and services should be accompanied by the ability to buy (purchasing power) and is referred to as effective demand.
Law of demand
The law of demand is an economic law that states that
consumers buy more of a good when its price decreases and less when its price increases, ceteris paribus.
It states that when price increases, the amount demanded will fall and when prices fall, the amount demanded will rise.
Rationale of the law of demand
There are two reasons for a fall in demand when the prices increase.
Income effect: People feel poorer. As the price of a good rises the purchasing power of people to buy that good will fall. This is known as income effect.
Substitution effect: Some people might shift to cheaper alternatives/substitutes once the price of a good rise, thus leading to a fall in demand for that good.
