In this article explain the concept of demand and its assumption in detail.
Table of Contents
Assumption of Law of Demand
The following conditions are compulsory to prove the law of demand true.
(1) Homogenous units
(2) Income of consumer
(3) Taste and fashion
(4) No substitute of product
(5) No change in population
(6) No new substitute of a commodity is discovered
(7) No chance of further change in price
(8) Weather should not change
Homogenous Units
It is assumed that the units of product are homogenous because if the quality of one unit is superior to other, then with an increase in the price the demand may not decrease.
Income of Consumer
The income of the consumer should remain the same because if his income increases then he may not decrease the demand even if the prices are high.
Taste and Fashion
If the commodity used as a fashion or its taste is superior to other, then the consumer will not decrease the demand even the prices are high. So fashion and taste of consumer should not be changed.
No Substitute of Product
No substitute available of the product in the market. If the substitute of a commodity is available then people go for substitute and it will decrease the demand. So substitute should not be discovered.
No Change in Population
There should not be any change in population, because increase in population will increase the demand of commodity.
No new substitute of a commodity is discovered
It is also assumed in this law that no new substitute of the commodity should be discovered. The reason is that if the new substitute of a commodity is discovered, then demand will be divided in both the commodities. If the new substitute is cheaper and better in quality, then demand for original commodity will decrease to a great extent and its demand will not increase inspite of the decrease in its price.
No chance of further change in price
It is also assumed in law of demand that there should be no further chances of change in price of a commodity. For example, the increase in the price of a commodity will be followed by a decrease in its demand. On the contrary, if there are chances of increase in the price, the people will not decrease the demand for the commodity inspite of the first increase in its price.
Weather should not change
Any change in weather can also result into change in demand for a product even if its price does not change. As in winter demand for woolen products increases even along with its price increase. Thus, in this way, the law of demand does not hold true.