Assumptions
Every law will have limitations or exceptions. While expressing the law of demand, the assumption is that other conditions of demand are unchanged. If they don't remain constant, the inverse relation may not hold well. In other words, it is assumed that the income and tastes of consumers and the prices of other commodities are constant. This law operates when the commodity’s price changes and all other prices and conditions do not change.
The main assumptions are:
- Habits, tastes and fashions remain constant.
- Money, income of the consumer does not change.
- Prices of other goods remain constant.
- The commodity in question has no substitute or is not in competition by other goods.
- The commodity is a normal good and has no prestige or status value.
- People do not expect changes in the price.
- Price is independent and demand is dependent.
Read more about this topic: Law Of Demand
Famous quotes containing the word assumptions:
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