What are the assumptions of the Law of Demand?
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Assumptions of Law of Demand :
While explaining the law of demand, the assumptions of ceterius paribus or other things remaining equal is made. It means while studying the relationship between the price of a commodity and demand for it, the effect of other determinants of demand on it is assumed to be constant. These are known as assumptions of the law of demand. Main assumptions of the law of demand are as under :
➡️ There is no change in the income of the consumer.
➡️ There is no change in the price of the related commodities.
➡️ There is no change in consumer's preferences like tastes, habit, fashion, etc.
➡️ The consumer expects that there will be no change in the price of the commodity in future.
➡️ The value of wealth held by people is same.
➡️ There is no change in the government policy concerning demand and taxes.
➡️ There is no change in the distribution of income in the country.
➡️ It is also assumed that the consumer is rational and the consumer has perfect knowledge.
➡️ The commodity is normal. The law of demand applies to normal commodities only. This law does not apply to Giffen Goods i.e. the goods of very poor quality.
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