Law of Demand tells that the amount of a commodity and its price are inversely related, other things remaining constant. If price of the good increases its quantity demanded decreases, while if price of the good decreases its quantity demanded increases. Law of demand operates because of effects of substitution and real income changes. Any change in the commodity price affects amount demanded of the commodity in mainly two ways substitution effect of a price change and income effect of a price change.
When prices of a good decreases it becomes relatively cheaper. Same good is substituted in place ofnow relatively costlier goods since one of the good in the consumption bundle has become cheaper, the consumer or customer is now left with some purchasing power he buys additional quantity demanded and a rise in its price reduces its quantity demanded. The Law of demand holds good in case of normal goods.
Assumption of the law of demand are no change in consumer's income, preferences, fashion, price of related goods. No expectation of future price changes or shortages. No change in size, age, composition, sex ratio of the population, range of goods available to the consumers. No change in the distribtuion of income and wealth of the community. Finally no change in Government Policy and weather conditions.