demand - the number of services or goods that the consumer is ready to buy at a certain time for a certain price.The amount of demand depends on the price of the goods and from the taste, income and the number of buyers.The main factor in it, is the price.The relationship between the volume of customer demand and the price of goods is recognized by the law of demand.It describes the meaning of the following relationship: the more expensive the item, the lower the number of buyers willing to buy it, the lower the demand.Conversely, the presence of other conditions being equal the quantity demanded increases at lower prices.Consequently, between the rates set and negative, negative relationship.
This relationship is explained by the following reasons:
set a high price is the reluctance of consumers to buy goods from, and reduced the number of purchases and increases the number of customers, resulting in increased demand and quantity demanded.
on consumption affects the principle of diminishing marginal utility, which shows that the acquisition of the following units of a particular product brings less satisfaction, and purchase additional inventory is possible only if the price reduction.
economic law of demand is explained by the substitution effect and the income, which indicates that the lower price allows a person to purchase a larger amount of the product, while he indulges in the purchase of other alternative products.The very same substitution effect says buyer desire to replace expensive products cheaper.
Change in demand
Also prices demand is influenced by many other factors:
Firstly, a change in consumer tastes (the popularity of physical health causes an increase in demand for sporting goods).
Secondly, the change in the number of customers (decrease fertility reduces the consumption and the demand for products for children).
change in income (welfare increases consumption of fruits, meat, while reducing the demand for bread, potatoes, pasta, etc.).
Changes in prices of goods and related services (reduction of tariffs for air passengers to minimize the demand for tickets to other transport modes).
Changing customer expectations (the appearance of information on reducing purchases of imported sunflower oil will cause a rise in the price for the goods and the expansion of the current demand for oil).
change economic policy (reduction of tax rates leads to increased income and, consequently, to an increase in demand and consumption).
law of supply gives the behavior of buyers and sellers economic objective assessment, which allows to predict their response to price changes.
But, in practice, there are situations - exceptions to the law of demand.For example, by increasing the prices of basic products (meat, potatoes, salt, bread) the amount of demand for them continues to grow.In this case, an increase in demand triggered by a trend towards an increase in prices.Buyers are waiting for further enhancing and increasing their purchases of these goods.
Exceptions to the rules of the law of demand describes the effect Giffen.This English economist, found that the drop in prices on luxury goods does not cause an increase in demand, but on the contrary, provokes its decline.It is established that the goods are bought not only because of high consumer properties, and in many ways to show the high status of a person, and a decrease in prices reduces their attractiveness.
There is also a Veblen effect, according to which in the short term rise in the price of the goods and the quantity demanded increases.In this case, we can talk about a new increase in consumer expectations in the near future the prices for goods.