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law of demand


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The claim that the level of demand for a good or service is inversely related to its price. The law of demand was originally formulated as an underlying principle of economics until advances in consumer theory showed how income and substitution effects could combine to upset the law. Moreover, general equilibrium theorists demonstrated that the standard assumptions of economic theory place no limitations on the shape of demand functions. The law has been recently resurrected as a statistical regularity that holds for observed preference and income distributions.

Subjects: Economics.


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