Law of Demand
The principle that consumers buy less of a good as its price rises, all else equal.
What is Law of Demand?
The law of demand states that there is an inverse relationship between the price of a good and the quantity demanded, holding all other factors constant. As prices rise, consumers substitute cheaper alternatives, and the purchasing power of their income effectively falls, both leading to reduced demand. The law of demand is illustrated by a downward-sloping demand curve on a price-quantity graph. Exceptions known as Giffen goods exist, where demand perversely increases with price because the good is a staple with no substitute and the income effect dominates. The law of demand is foundational to supply-and-demand analysis, pricing strategy, and market equilibrium theory across virtually all markets.
Example
When the price of gasoline rises from $3 to $5 per gallon, consumers drive less, carpool more, and consider fuel-efficient vehicles. Demand for gasoline falls — the quantity demanded declines. Conversely, when prices drop back toward $3, consumers drive more and demand rises again. The negative price-demand relationship holds even for essential goods, though the magnitude of the response (elasticity) varies.
Source: Investopedia — Law of Demand