Question

Law of Demand The law of demand is an inverse relationship between the price and quantity de manded. Evaluate how you can relate this law to a recent purchase that you have made. Why do you think this law is an effective law that holds within markets? How do you think a store is able to deal with a shortage that is present at a grocery store?What does a shortage reflect about the product? Reply

Answer 1

Law of demand shows the inverse relationship between Price and quantity demanded. This could be seen with an example. Suppose I bought 6 apples when the price was $ 10. Now if the price rises to $ 15, I would in order to keep my budget stable , decide to buy less of the apples so that units of my other goods purchased are constant. This is how demand law works. When the price of apples rose keeping other things constant, my demand for it reduced ( inverse relationship).

This law is effective in real markets because consumers tend to be rational. They would buy a good as long as the marginal utility derived from it is same as the price. If the price increases , they would buy less of it. Their ability and willingness to pay a higher price for the same good would reduce because probably most consumers wouldn't be able to afford it at that price. Thus it is effective in the market.

If there exists a shortage of a good in the grocery store, the manager or owner may decide to increase the price of that good. This would mean that some consumers who were willing to pay at the going prices won't buy it at a higher price. So the demand would reduce therefore meeting the short supply and hence the market would be at equilibrium.

The shortage of a good means the quantity demanded of the good is more than the quantity supplied . This means that the good is popular among the consumers or is according to the consumers preferences. Hence the shortage of good.

(You can comment for doubts)