The inverse relationship between price of a commodity and its quantity demanded is explained by law of demand. The Law of Demand states that while other. According to law of demand “price is inversely proportional to demand”. that there is a direct relationship between the price and the quantity demanded?. In microeconomics, the law of demand states that, "conditional on all else being equal, as the In other words, the law of demand describes an inverse relationship between price and quantity demanded of a good. Alternatively, other things.
So this right over here, these other ebooks, these are substitutes.
Price of related products and demand
People might say, oh, you know, that other book looks kind of comparable, if one is more expensive or one is cheaper, maybe I'll read one or the other. So in order to make this statement, in order to stay along this curve, we have to assume that this thing is constant. If this thing changes, this is going to move the curve. If other ebooks prices go up, it'll probably shift our curve to the right.
If other ebooks prices go down, that will shift our entire curve to the left.
So this is actually changing our demand. It's changing our whole relationship. So it's shifting demand to the right. So let me write that. So this is going to shift demand. So the entire relationship, demand, to the right. I really want to make sure that you have this point clear.
- Law of demand
When we hold everything else equal, we're moving along a given demand curve. We're essentially saying the demand, the price quantity demanded relationship, is held constant, and we can pick a price and we'll get a certain quantity demanded. We're moving along the curve.
If we change one of those things, we might actually shift the curve. We'll actually change this demand schedule, which will change this curve.
Now, there other related products, they don't just have to be substitutes. So, for example, let's think about scenario two.
Or maybe the price of a Kindle goes up. Let me write this this way.
Law of demand - Wikipedia
Kindle's price goes up. Now, the Kindle is not a substitute. People don't either buy an ebook or they won't either buy my ebook or a Kindle.
Kindle is a compliment. You actually need a Kindle or an iPad or something like it in order to consume my ebook. These include [[Veblen goods] [Giffen goods] and expectations of future price changes. Further exception and details are given in the sections below.
Giffen goods[ edit ] Initially proposed by [Sir Robert Giffen], economists disagree on the existence of Giffen goods in the market. A Giffen good describes an inferior good that as the price increases, demand for the product increases.
Determinants of demand: price of complements and substitutes (video) | Khan Academy
As an example, during the Irish Potato Famine of the 19th century, potatoes were considered a Giffen good. Potatoes were the largest staple in the Irish diet, so as the price rose it had a large impact on income. People responded by cutting out on luxury goods such as meat and vegetables, and instead bought more potatoes. Therefore, as the price of potatoes increased, so did the quantity demanded.
Similarly, if the household expects the price of the commodity to decrease, it may postpone its purchases. Thus, some argue that the law of demand is violated in such cases. In this case, the demand curve does not slope down from left to right; instead it presents a backward slope from the top right to down left. This curve is known as an exceptional demand curve. Medicines covered by insurance are a good example.
An increase or decrease in the price of such a good does not affect its quantity demanded.