Law of Demand - Assumptions of Law of Demand

Assumptions of Law of Demand :

1) Constant level of income :

If the law of demand is to find true operate then, consumers' income should remain constant. If there is a rise in income, people may demand more at a given price.

2) No change in size of population :

It is assumed that the size of the population remains unchanged. Any change in the size and composition of the population of a country affects the total demand for the product.

3) Prices of substitute goods remain constant :

It is assumed that the prices of substitutes remain unchanged. Any change in the price of the substitute will affect the demand for the commodity.

4) Prices of complementary goods remain constant :

It is assumed that the prices of complementary goods remain unchanged because a change in the price of one goodwill affects the demand for the other.

5) No expectations about future changes in prices :

It is assumed that consumers do not expect any further change in price in the near future. If consumers expect a rise in prices in the future, they may demand more in the present even at the existing high price.

6) No change in tastes, habits, preferences, fashions, etc. :

It is assumed that consumers' tastes, habits, preferences, fashions etc. should remain unchanged. Any change in these factors will lead to a change in
demand.

7) No change in taxation policy :

Taxation policy of the government has a great impact on demand for various goods and services.Therefore, it is assumed that there is no change in the policy of taxation declared by the Government.