Question

The price of good X is higher in year 2 than in year 1 and people are buying more of good X in year 2 than year 1. Obviously, the law of demand does not hold. Do you agree or disagree? Explain your answer.

Answer 1

The law of demand states that quantity purchased varies inversely with price, other things remain constant .  The higher the price, lower the quantity demanded and vice versa. This occurs because of diminishing marginal utility. That is, consumers use the first units of an economic goods they purchase to serve their most urgent needs first, and use each additional unit of the good to serve successively lower value ends.

Assumptions of Law of Demand

1. There is no change in the taste and preferences of the consumer
2. The income of the consumer remains constant
3. There is no change in customs
4. The commodity to be used not confer distinction on the consumer
5. There should not be any substitute of the commodity
6. There should not be any change in prices of the other commodity

Hence here the price of good X is higher in year 2 than in year 1 and people are buying more of good X in year 2 than year 1 , this shows direct relationship between price and quantity . Hence Law of demand doesn't hold . As due rise in price , quantity demanded also rises . There may be voilation  one of the of the assumptions of law of demand . Suppose Mercedes introduces a new model car with high prices , then the luxurious consumer will tend to buy it instead of it's higher prices , due to taste and preference of that car only . Or suppose , price of wine rises , but due to consumer habbit of consumption , they will buy more quantity , Law of demand voilate in such cases .