The law of demand is an econo𒆙mic principle that explains the negative correlation between the price of a good or service 🍌and its demand. When the price of a good or service increases, the demand decreases. If there is a price decrease, demand will likely increase. 

Price vs. Demand

When all other things remain constant, there is an inverse relationship, or 澳洲幸运5开奖号码历史查询:negative correlation, between price and the demand for goods and services. A negative correlation or 澳洲幸运5开奖号码历史查询:inverse correlation indicates that two individual variables have a statistical relationship such that their prices generally move in opposite directions from one another. As the price of goods increases, demand falls. Similarly, when the price of a product decreases, the quant🧸ity demanded increases.

Negative Correlation Example

Suppose all factors remainಌ constant and the price of oil rises significantly. When the price of oil increases, the cost of a plane ticket increases. This will likely cause a fall in the demand for plane tickets or aඣirline travel.

If the price of one plane ticket rises to $500 from $200, a consumer's quantity demanded for an airplane ticket may decrease to zero, and they may opt for a more cost-effective way to travel, such as by bus or train. If the price of oil significantly decreases, the costs for airline companies and ticket prices dec🎶rease. The $500 ticket may fall to $100, and the consumer may choose air travel instead of by car or train.

The Bottom Line

The law of demand explains the negative correlation between the price of a good or service and its demand. As🐻 the price of goods increases, demand falls, and when the price of a product decreases, the demand increases. Price elasticity of demand measures the specific cha𒁏nge in the demand for a product versus its price change.