Law of demand
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The operation of the law of demand is usa phone list due to the presence of income and substitution effects, which are manifested as follows:
An increase in prices leads to a decrease in the actual income of the consumer, since in this case he buys fewer goods for the same amount of money, and therefore more expensive products are in less demand. This is how the income effect affects demand.
A high price for a product encourages the consumer to look for cheaper goods that can act as substitutes, while the demand for the more expensive product also decreases. This is the essence of the substitution effect.
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The law of demand allows us to draw certain conclusions:
Consumers act in the market according to the following principle: lower prices for products stimulate consumers to increase demand, which is typical for the wholesale sector.
Consumers are less inclined to purchase high-priced goods and at the same time increasingly feel the need to purchase low-priced goods.
Income effect: When prices rise and consumer incomes remain the same, purchasing power is limited, leading to a decline in demand.
Substitution effect. It follows directly from the income effect and is expressed in the fact that consumers tend to use substitute goods that can solve the problem at a lower cost.
Price factors that influence market demand include fluctuations in prices of related goods. If one of the interchangeable goods, for example, coffee, begins to rise in price, then the demand for related goods, such as tea or cocoa, increases. In turn, when the price of a complementary good (for example, gasoline) rises, the demand for a related good (say, cars) simultaneously falls.
During a crisis, situations may arise in which the law of demand does not apply:
Giffen's paradox. A crisis leads to an increase in prices for essential goods, but demand for these goods remains regardless of the price level, since consumers need them constantly.
Veblen effect. The crisis is associated with a rise in the price of luxury goods, but despite this, demand for them remains high.
Snob effect. Due to economic instability, people tend to stock up and buy goods for a large amount, while under normal conditions there is no need for this. At the same time, the demand for these products, on the contrary, only increases.