The law of demand is an economic law, which states that consumers buy more of a good when its price is lower and less when its price is higher (ceteris paribus).The Law of demand states that the quantity demanded and the price of a commodity are inversely related, other things remaining constant. That is, if the income of the consumer, prices of the related goods, and preferences of the consumer remain unchanged, then the change in quantity of good demanded by the consumer will be negatively correlated to the change in the price of the good.Every law will have limitations or exceptions. While expressing the law of demand, the assumption is that other conditions of demand are unchanged. If they don't remain constant, the inverse relation may not hold well. In other words, it is assumed that the income and tastes of consumers and the prices of other commodities are constant. This law operates when the commodity’s price changes and all other prices and conditions do not change. The main assumptions are:
- Habits, tastes and fashions remain constant.
- Money, income of the consumer does not change.
- Prices of other goods remain constant.
- The commodity in question has no substitute or is not in competition by other goods.
- The commodity is a normal good and has no prestige or status value.
- People do not expect changes in the price.
- Price is independent and demand is dependent.
The "law of supply" is a fundamental principal of economic theory which is that quantities respond in the same direction as price changes. In other words, the law of supply states that (all other things unchanged) an increase in price results in an increase in quantity supplied. This means that producers are willing to offer more products for sale on the market at higher prices by increasing production as a way of increasing profits.
The law of supply states that, ceteribus paribus (latin for 'assuming all else is held constant'), the quantity supplied for a good rises as the price rises. In other words, the quantity demanded and price are positively related. Supply curves are drawn as 'upward sloping' due to this positive relationship between price and quantity supplied. Note: There are theoretical instances where the law of supply might not hold, though these are rarely, if ever, seen in the real world.