THEORY OF DEMAND

 Let's understand the concept of Demand first. Demand refers to consumer's desire to purchase goods and services at given price. ALFRED MARSHALL propounded Theory of Demand.

According to Theory of Demand,if price of a commodity increases then, its demand decreases and vice-versa. Theory of demand basically explains the inverse relationship between demand and price of the commodity.

ASSUMPTIONS OF THEORY OF DEMAND:

1. No change in price of related goods.

2.No change in income of consumers.

3. No change in tastes and preferences of the consumers.

4. No expectations of consumer to change in price of commodity in near future.

MEANING

Theory of Demand introduces an inverse relationship between price and demand of a good or service, provided other factors are constant. Also as the price deceases its demand increases. This relationship is further illustrated with the help of following table and graph:

So, it is clearly observed that with the increase in price of commodity X, its demand has decreased whereas at lower prices of X, demand was more when other factors remain constant.