The Law of Demand

The law of demand states that, all else being equal, when the price of a product falls, the quantity demanded rises; when the price rises, the quantity demanded falls.

Formulaically:
Demand is inversely related to price.

Why does this happen?

• Income Effect – When prices fall, consumers can buy more with the same income.
• Substitution Effect – When a product becomes cheaper, people switch from alternatives to this product.
• Diminishing Marginal Utility – Each additional unit of a good provides less satisfaction, so consumers will only buy more if the price drops.

Example:
If the price of apples drops from $3 to $2 per kg, more people will buy apples instead of bananas or oranges.