The law of demand is an economic principle that explains the negative correlation between the price of a good or service and its demand. If all other factors remain the same, when the price of a good or service increases, the quantity of demand decreases, and vice versa. When all other things remain constant, there is an inverse relationship, or negative correlation, between price and the demand for goods and services. 

For example, suppose all factors remain constant and the price of oil is rising significantly. When the price of oil increases, the price of a plane ticket increases as well. This will cause a fall in the demand for plane tickets, because ticket prices may be too expensive for average consumers.

Suppose an individual wants to travel to a city 500 miles away, and the price of one plane ticket is $500 as opposed to $200 last year. She may be less likely to travel by air due to the increase in price. This causes her quantity demanded for an airplane ticket to decrease to zero. She is more likely to choose a more cost-effective way to travel, such as taking a bus or a train.

Similarly, when the price of a product decreases, the quantity demanded increases. For example, suppose the price oil significantly decreases instead. This cuts the costs for airline companies and causes a decrease in the prices of airplane tickets. If airline companies are now only charging $100 as opposed to $500 in the previous example, the quantity demanded will increase. The individual may demand five tickets now, as opposed to zero before, because the price of one airplane ticket to travel 500 miles was cut by 80%.

(For related reading, see "Introduction to Supply and Demand.")

  1. What are some examples of the law of demand in real markets?

    Find out how the price of a good or service affects the quantity demanded, and explore instances of consumption reflecting ... Read Answer >>
  2. How does the law of supply and demand affect the housing market?

    Learn about the law of supply and demand, the relationship between supply and demand, and how it affects the housing market. Read Answer >>
  3. What does it mean when airline revenues are adjusted for air traffic liability?

    Understand how the accounting method used by airlines requires them to adjust revenues for air traffic liability and when ... Read Answer >>
  4. How does aggregate demand affect price level?

    Prices coordinate supply and demand, and they are also determined by it; there is no clean, direct and one-dimensional link ... Read Answer >>
  5. How does the law of supply and demand affect the stock market?

    Find out how the law of supply and demand affects the stock market, and how it determines the prices of individual stocks ... Read Answer >>
  6. Is there a correlation between inflation and house prices?

    There is a correlation between inflation and house prices - in fact there are correlations between inflation and any good ... Read Answer >>
Related Articles
  1. Personal Finance

    Why Is My Seatmate's Ticket So Much Cheaper Than Mine?

    How some travelers get their tickets for much less than others.
  2. Insights

    StubHub's Top 4 Competitors in Ticket Reselling

    StubHub operates the leading online marketplace for buyers and sellers of tickets, but it faces stiff competition from four companies with strong value propositions.
  3. Personal Finance

    Best Frequent Flyer Credit Cards For (Almost) Free Travel

    Worried about how you’re going to afford your next plane ticket? We’ll show you the best credit cards for racking up frequent flyer miles.
  4. Tech

    Super Bowl Ticket Prices Set New Records

    This year's Super Bowl might turn out to be the most expensive ever.
  5. Insights

    How supply and demand affects inelastic goods

    Find out how the laws of supply and demand function for goods and services that are considered highly inelastic, including goods not yet discovered.
  6. Insights

    “Hamilton” Ticket Prices: An Economics Case Study

    It's not about greed, it's about simple economics.
  7. Tech

    Where To Get The Cheapest Airline Tickets

    We test out a range of ways to get cheap tickets for your next flight.
  8. Investing

    Key Financial Ratios For The Retail Industry

    The retail industry is measured on sales growth in existing store, forecasted based on foot traffic and ticket data, and the impact on profitability ratios.
  9. Investing

    Why Europe Has The Cheapest Airfare

    Airline deregulation, more airport choices and number of flights all affect how much flights cost.
  1. Quantity Demanded

    Quantity demanded is used in economics to describe the total ...
  2. Average Ticket

    Average ticket is a metric that provides details on the average ...
  3. Demand Curve

    The demand curve is a representation of the correlation between ...
  4. Change In Demand

    Change in demand is used to describe a shift in total demand ...
  5. Positive Correlation

    Positive correlation is a relationship between two variables ...
  6. Price Elasticity of Demand

    Price elasticity of demand is a measure of the change in the ...
Trading Center