OMTEX CLASSES: Assumptions to the law of DEMAND

Assumptions to the law of DEMAND

1.      No change in income level of the consumer:if the law of demand is to operate, consumers’ income remain constant. If there is rise in income, people may demand more at higher prices.

2.      No change in Consumer’s Taste, Preference and habit: -It is assumed that consumers’ habits, preferences, attitudes etc. remain unchanged. In other words, there is no change in consumers’ choice for the product.
3.      No change in prices of substitute goods: -A change in the price of substitutes will affect the demand for the commodity. If the price of substitutes fall much more the price of the commodity, people may not demand more of that commodity even at lower prices.
4.      No introduction of any substitutes: -it is also assumed that there is no introduction of any new substitutes in the market.

5.      No anticipation of price change in future: -It is also assumed that people do not anticipate any further change in the price in the near future. If people expect a further rise in price, they may demand more even the existing high price. Similarly, if people expect a further fall in price, they may not buy more even at the existing low price.

6.      No change in Size, sex and age composition of the population: -It is assumed that the size and composition of the population remain unchanged. After all, it is the population of a country that constitute the total market demand for a product. So any change in the size and composition of population of a country affect the total market demand for a product.

7.      No change in the taxation policy of the government: - Government policies on direct and indirect taxes have great impact on demand for various goods and services. Therefore, it is assumed that there is nochange in government policy on taxation.