Question

state and explain assumptions of law of demand??​

Answer 1

Answer:

Assumptions under which law of demand is valid

No change in price of related commodities. No change in income of the consumer. No change in taste and preferences, customs, habit and fashion of the consumer. No expectation regarding future change in price.

Answer 2

Law of Demand states that as the price of any good or product(normal) goes up, its demand among the buyers or consumers decreases.Therefore, it only shows the relationship between price and demand of a good.

Explanation:

Assumptions of the law of demand:-

1. Prices of substitute and complement goods must remain constant.Substitute goods are similar goods and if the price of a substitute good increases, the demand for the other increases.On the other hand, if the price of any good falls,the demand for its complement good will increase.
2. Income of the consumers must remain constant.As stated earlier, law of demand shows only the relationship between price and demand of a product.Hence,if we bring consumer income into considerations, it will affect this price-demand relationship.
3. Consumer taste and preference must remain constant.Consumer taste and preference implies personal choices and preferences of consumers regarding various characteristics,qualities,features etc. of products.These personal perceptions and inclinations should be avoided while discussing law of demand because a consumer might prefer an expensive product or good just based on qualitative superiority or preference, which is contradictory to the law of demand.
4. Future expectations about prices must remain constant.Any expectations about future prices can change consumer behavior in present.For example, if a consumer expects the price of a commodity to increase in future, his or her present demand for the product will increase thereby increasing the present consumption as well.This again is contradictory to the law of demand.
5. Population size of the country must remain constant.Any change in current population level of the country will expectedly change the overall demand for goods and services.For example, a sudden increase in population size will raise the demand for goods and services and vise versa even if the prices are high thereby, invalidating law of demand.