Law of Demand
Definition of 'Law of Demand'
The law of demand is a fundamental principle of economics that helps to explain how markets work. It is based on the idea that consumers have a limited amount of money to spend and will therefore choose to buy less of a good or service if its price increases. This is because consumers will only buy a good or service if they believe that the benefits of owning it outweigh the cost.
The law of demand can be used to predict how changes in price will affect the quantity demanded of a good or service. For example, if the price of a new car increases, consumers are likely to buy fewer new cars. This is because they will have to spend more money on the car, which means that they will have less money to spend on other goods and services.
The law of demand can also be used to explain why prices for goods and services fluctuate. When the demand for a good or service increases, the price of that good or service will also increase. This is because sellers will be able to charge more for the good or service because they know that consumers are willing to pay more for it. Conversely, when the demand for a good or service decreases, the price of that good or service will also decrease. This is because sellers will be forced to lower their prices in order to attract buyers.
The law of demand is a powerful tool that can be used to understand how markets work and to predict how changes in price will affect the quantity demanded of a good or service.
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