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Law of demand

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The explanation for the Veblen effect is that price itself in this case influences the preferences of the household. Preferences are an exogenous determinant of demand.
The law of demand is typically derived or justified with the assumption of rational behavior. However, this is one of the most robust laws in the sense that it is substantially valid under highly imperfect conditions and highly irrational behavior. In other words, households and firms exhibit behavior consistent with the law of demand even if they fail to meet the conditions of rationality. Some reasons are given below.
===Hard constraints===
The law of demand for an individual or household arises, as discussed earlier, from a combination of a finite budget (the [[income effect]]) and diminishing marginal utility, often combined with the presence of close substitutes (the [[substitution effect]]). In many cases, these constraints are ''soft constraints'', in the sense that an individual or household could in principle spend more on a given good or service by cutting down on other goods or services -- the individual or household is not literally out of money.
However, in other cases, the constraints are ''hard constraints'' -- the individual or household actually runs out of money, curtailing its demand for a particular good. For those who are either too poor or who have too little discipline to adhere to soft constraints on spending money, the hard constraints still impose a discipline that leads them to behave roughly according to the law of demand. Thus, for instance, a poor family literally living on a subsistence income, that spends all its money on food and shelter, finds that when the price of a staple food goes down, it literally has more money to spend on that staple good (the income effect).
Hard constraints also operate for the purchase of single items that cost a huge amount of upfront money, such as refrigerators, cars, and houses. This is particularly so if loans or deferred payment options are not easily available.
===Subconscious behavior===
In many cases, changes in behavior based on the law of demand are subconscious and not based on any conscious calculation. In other words, humans may have natural instincts that lead them to buy more of something when it is cheaper. Such instincts may have both evolutionary and cultural roots. {{fillin}}
===Journal references===
* {{paperlink|Becker1962Irrational}}
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