The Law of Demand

Definition

The law of demand states that as the price of a good or service falls, the quantity of that item which is demanded will increase. If you think about it this is very logical – if a Mars Bar only cost $0.50 we would all buy a lot more of them!

We can represent the law of demand on a graph. We will use the horizontal axis to chart the movement in quantity, while the vertical axis will record the movements in price. As a result, we can say that when the price is high, the quantity demanded will be relatively low. This is seen at point A on the graph below. On the other hand, when the price is low, the quantity demanded will be higher (point B).

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