The law of demand is a fundamental principle in economics that explains how market economies allocate resources and determine the prices of goods and services. It states that the quantity purchased varies inversely with price, meaning that the higher the price, the lower the quantity demanded. This occurs because of diminishing marginal utility, which means that consumers use the first units of an economic good they purchase to serve their most urgent needs first, then they use each additional unit of the good to serve successively lower-valued ends.

The law of demand is usually represented as a graph, with the quantity demanded on the x-axis and the price on the y-axis. The demand curve is downward sloping, indicating the inverse relationship between price and quantity demanded. The law of demand is a foundational principle in microeconomics, helping us understand how buyers and sellers interact in the marketplace.

The law of demand is important because it explains consumer choice behavior when the price changes. It is used together with the law of supply to determine the efficient allocation of resources in an economy and find the optimal price and quantity of goods. The law of demand has important applications in the real world, guiding the actions of politicians and policymakers and informing fiscal and monetary policies undertaken by governments around the world.