The Law of Demand

In economics, Demand isn't just wanting something; it is wanting it and being able to pay for it. The Law of Demand is a simple rule that describes how we behave as shoppers. It states that when the Price ($P$) of an item goes down, the Quantity Demanded ($Q_d$)—or how much people want to buy—goes up.

Think of it like a seesaw: - If Price $\uparrow$, then Quantity Demanded $\downarrow$ - If Price $\downarrow$, then Quantity Demanded $\uparrow$

This happens because most of us have a limited amount of money. We want to get the most 'bang for our buck!'

Why do we act this way? There are two main reasons. First is the Income Effect. If you have $10 and a comic book costs$5, you can buy two. If the price drops to $2, your$10 suddenly feels like more money because you can now buy five!

Second is the Substitution Effect. If the price of your favorite juice goes way up, you might substitute it for a cheaper brand of water or milk instead. When things get expensive, we look for better deals elsewhere.

Have you ever seen a 'Buy One, Get One Free' sign? Stores use the Law of Demand to clear their shelves. By lowering the price (or offering a discount), they know that more people will want to buy their products.

This is why stores have huge sales during holidays. They lower the price ($P \downarrow$) because they know it is the most effective way to make the quantity of items sold go up ($Q_d \uparrow$).