The Law of Demand

Six question-and-answer flashcards covering the definition, graphical representation, assumptions, distinctions, exceptions, and determinants related to the law of demand.

What does the law of demand state?

Ceteris paribus, the quantity demanded of a good decreases as its price increases, and increases as its price decreases.

In a standard graph, what is the typical shape of the demand curve implied by the law of demand?

A downward-sloping curve from left to right.

What key assumption underlies the law of demand?

The ceteris paribus assumption—holding all other factors constant while the price changes.

What causes a movement along a demand curve versus a shift of the demand curve?

A movement along the curve is caused by a change in the good’s own price; a shift is caused by changes in non-price determinants such as income, tastes, expectations, prices of related goods, or number of buyers.

Name one exception to the law of demand where quantity demanded can rise as price rises.

Giffen goods (or, in another context, Veblen goods).

List two factors that can shift the demand curve to the right (increase demand).

An increase in consumer income (for normal goods) and a rise in the price of a substitute good.