pricedemand

Price-demand refers to the relationship between the price of a good or service and the quantity that consumers are willing and able to buy at that price. In standard microeconomic analysis, the law of demand states that, ceteris paribus, as price falls, quantity demanded rises, and as price rises, quantity demanded falls. This inverse relationship is depicted by the downward-sloping demand curve, which can be influenced by a range of factors beyond price.

Movements along the demand curve occur when price changes while other determinants remain fixed. Shifts of the curve occur when non-price factors—such as income, prices of substitutes or complements, consumer preferences, expectations, or the number of buyers—change the quantity demanded at every price.

Price elasticity of demand measures how responsive quantity demanded is to price changes. It is calculated as the percentage change in quantity demanded divided by the percentage change in price. Elastic demand means large changes in quantity for small price changes; inelastic demand means smaller changes. Factors that influence elasticity include the availability of substitutes, whether the good is a necessity or a luxury, the share of income, and the time horizon.

Practical use and limitations: Businesses use price-demand concepts to set pricing and forecast revenue; governments consider price effects in taxation and public policy. Limitations include the ceteris paribus assumption; in some markets demand may be affected by beliefs or expectations that alter responses over time; some goods exhibit non-standard demands such as Giffen goods or Veblen effects.