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LAW OF DEMAND

8 May, 2015 - 10:33

The law of demand postulates that the relationship between price and quantity in the mind of buyers is inverse. The law of demand is represented graphically by a downsloping demand curve. The law of demand is explained by the diminishing marginal utility, the income effect and the substitution effect; it can also be derived with the help of indifference curves.

A retail store would certainly be most interested to know what its customers are willing to pay for what they want to buy. Such knowledge would allow the store to price its products most efficiently. This is the reason why market research is conducted to determine what customers want to buy and at what price.