Suppose a producer sells 1,000 units of a product at $5.00 one year,2,000 units at $8.00 the next year ,and 3,000 at $10.00 the third year. Is this evidece that the law of demand is violated

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This set of circumstances does not contradict the law of demand.  That is because there are many scenarios in which the observed price increases and increases in sales would be consistent with the law of demand.

The law of demand states that, all other things being equal, an increase in price will lead to a decrease in quantity demanded.  The scenario given here may appear to contradict this, but it only appears this way if we forget that the law of demand says “all other things being equal.”  There are many things that could have changed to allow people to buy more of this good even as the price has risen.  Let us look at three possible scenarios.

One thing that might have happened is that the country got richer.  If the economy is booming and people are getting more money, they are likely to buy more goods even if the goods become more expensive.  Consumer income is one factor that can make demand rise.

Another thing that can make demand rise is consumer tastes.  Sometimes, people simply come to think that a given good is “cool.”  Maybe an advertising campaign has made them think this.  Or maybe the good is “green” and people have come to think that conserving the environment is important.  If more people start to think the good is cool, more of them will buy it even at a higher price. 

Finally, demand for a given product can rise if its competitors’ prices rise (or if its competitors go out of business).  In our scenario, it might be that more competitors went out of business each year, allowing the firm to raise prices without losing customers.

It is true that an increase in price should lead to a decrease in quantity demanded.  But that is only true if demand remains constant.  It is possible that demand could have risen for this product for one of the three reasons mentioned above, or for other reasons.  If demand rises, it is possible for more of a product to be sold at a higher price.

Therefore, the law of demand is not necessarily violated by this scenario.

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