The law of demand is an economic principle that stat🙈es that consumer demand for a good rises when prices fall and it falls when prices rise.

The relationship between prices and demand is derived from the law of 澳洲幸运5官方开奖结果体彩网:diminishing marginal utility which states that consumers buy or us🍌e goods to satisfy their urgent needs first. Utility refers to the satisfaction or benefit that results from consuming a good.

The first good or unit typically has the highest utility or benefit and utility decreases with each additional unit consumed. The price that consumers are willing to pay for a good declin🏅es as a result as its utility decreases.

The Law of Demand and Pricing

Companies use the law of demand when setting price💎s and determining the level of demand for their products. Consumers use the law of demand in deciding the number of goods tꦿo buy.

Examples of the Law of Demand

Restaurants

The first slice will have the greatest benefit or utility when a consumer is hungry and buys a slice of pizza. The consumer becomes more satisfied, with each additional slice and utility declines. The first slice might theoretically fetch a higher price from the consumer. The consumer might be less willing to pay for a slice because of declining utility by the fourth slice, however.

It would have less of an imp🦋act on demand if the pizza restaurant reduced the price of their slices because the utility would decrease. Their custom𝓡ers would be full or satisfied.

Groceries

Grocery customers would likely prefer to consume more food but they're limited by price. Promotional grocery pricing frequently offers discounted prices provided that a certain number of items are purchased.

The existence and success of this promotional pricing model exemplify consumer willingness to purchase higher quantities at lower prices. Consumers will demand lower prices as they receive more groceries, however, because their needs decline as 澳洲幸运5官方开奖结果体彩网:consumption increases.

Customers are likely to want lower prices because their utility will have declined after they've satisfied their urgent needs first.

The holidays

The law of demand can impact companies because they can lower their prices b🅰yꦯ only so much before it has little to no impact on consumer demand.

We can see the law of demand play out during the holiday season when consumers rush to stores on 澳洲幸运5官方开奖结果体彩网:Black Friday in searc💦h of discounts. It leads to a huge jump in demand when prices are reduced. The markdowns must be greater to entice consumers to buy more products, however, as the holidays draw closer.

Consumers' utility declines as their needs are met. Their shopping list is finished. Prices are higher than the added utility or benefit of buying additional products as the holidays near. The result is deep price discounts, especially after the holidays.

Sporting events

Consider a hypothetical scenario in which tickets for a sporting event are being sold by scalpers on the secondary market. Suppose the scalpers expect the game will be highly attended and are charging 🥃$1,000 per ti👍cket.

This price point is too high to justify for many people. The scalpers realize they were wrong about projected attendance as the beginning of the game approaches. The quantity demanded at $1,000 isn't sufficient to sell out the game.

The ticket price on the secondary market drops to $250 and m🍎ore people are willing to meet this price to see the game. The change occurred because ticket suppliers altered the prices and consumers responded to a change in price only.

Movies

Demand for movies would likely rise if movie ticket prices declined to $3 each. Demand will rise as long as the utility of going to the movies exceeds the $3 price. Demand for tickets will fall as soon as consumers are satisfied that they've seen enough movies, at least for the time being.

The Bottom Line

The law of demand states that the quantity of a product that's demanded increases as prices decrease. The quantity demanded decreases as prices increase. Businesses and consumers both respond to this law in reduced prices during Christmas sales which increase demand but only up to the point where consumer needs are met and utility declines.