Derivation of the Law of Demand from the Law of Equimarginal Utility
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Derivation of the Law of Demand from the Law of Equimarginal Utility

Derivation of the Law of Demand from the Law of Equimarginal Utility Price is one of the factors which bring about a change in demand. But in this case the change is called extension or contraction of demand. There are, however, several other factors which can bring about a change in demand independently of a change in price. In such cases, we shall say that the demand has really increased or decreased as distinguished from mere extension or contraction. T

Derivation of the Law of Demand from the Law of Equimarginal Utility

Price is one of the factors which bring about a change in demand. But in this case the change is called extension or contraction of demand. There are, however, several other factors which can bring about a change in demand independently of a change in price. In such cases, we shall say that the demand has really increased or decreased as distinguished from mere extension or contraction. These factors are:

(i) Changes in Tastes and Fashions-Increase in the habit of tea drinking has decreased the demand for milk. The fashion among ladies to keep hair long or short brings about changes in demand for hair-pins, hair nets, etc.

(ii) Climatic or Weather Changes- In winter there is a great demand for warm clothing and in summer there is a demand for electric fans and cold drinks.

(iii) Change in Population- Influx of new people will create demand for the good they are in the habit of consuming. A change in the composition of the population will also affect demand, if, for instance, on account of a war a large number of young persons are dead, then this will mean a decrease in the number of marriages and a decrease in commodities required for marriages.

(iv) Changes in the Amount of Money-When there is inflation, it causes a great increase in demand which leads to a rise in prices.

(v) Changes in Real Income-When things become cheap, the people are able to buy more, and it is said that their real income has increased. Less money will be needed to purchase the same quantity of the good and the saving so made will find outlet in the purchase of some other commodities. Thus the demand schedule will have to be recast.

(vi) Change in Wealth Distribution- When wealth is more evenly distribut¬ed, the goods demanded by the people who have acquired more wealth will increase and the demand of the people who have lost wealth will decrease.

(vii) Goods with Inter-connected Values- For example, in the case of substitutes increase in the consumption of one will lead to a decrease in the demand for the other.

(viii) Conditions of Trade- Demand for everything are greater in a boom though the prices are rising. Opposite is the case during depression.

(ix) Changes in Taxes, Subsidies and Bounties- When there is change in taxes, subsidies and bounties in respect of the commodity in question, its price will be affected, which in turn will alter the pattern of demand.

(x) Changes in the Methods of Production and the Pattern of Alternative Uses-Changes in techniques and in the use of factors will affect the demand pattern for those factors (i.e., the derived demand), as in the case of capital equipment and labour or chemicals.

(xi) Anticipated Political or Price Changes- Sometimes, rumours and general speculation about tax changes, war, etc., or of future shortages or abundance cause the present pattern of demand to change.

(xii) Changes in the Degree of Competition among the Consumers of the Product- If there is a change in the degree of competition among consumers of die product due to any of the above mentioned factors, there will also occur a shift in the pattern of demand.

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