Definition of The Law of Demand

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By
Mike Moffatt
Professor of Business, Economics, and Public Policy
  • Ph.D., Business Administration, Richard Ivey School of Business
  • M.A., Economics, University of Rochester
  • B.A., Economics and Political Science, University of Western Ontario
Mike Moffatt, Ph.D., is an economist and professor. He teaches at the Richard Ivey School of Business and serves as a research fellow at the Lawrence National Centre for Policy and Management.
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Mike Moffatt
Updated February 02, 2018

A common definition of the law of demand is given in the article The Economics of Demand:

  1. "The law of demand states that ceteribus paribus (latin for 'assuming all else is held constant'), the quantity demand for a good rise as the price falls. In other words, the quantity demanded and the price is inversely related."

The law of demand implies a downward sloping demand curve, with quantity demanded to increase as price decreases. There are theoretical cases where the law of demand does not hold, such as Giffen goods, but empirical examples of such goods are few and far between. As such, the law of demand is a useful generalization for how the vast majority of goods and services behave.

Intuitively, the law of demand makes a lot of sense- if individuals' consumption is determined by some sort of cost-benefit analysis, a reduction in cost (i.e. price) should lower a number of benefits a good or service needs to bring a consumer in order to be worth purchasing. This, in turn, implies that price reductions increase the number of goods for which consumption is worth the price paid, so demand increases.

Terms Related to Law of Demand

Resources on Law of Demand