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Supply and Demand
#1
Demand
The amount of a commodity that the consumers buy, depends on a no. of factors major being the price. Normally, higher the price of a
commodity, lower the quantity that consumers will buy. Hence, there is a relationship between the price of a commodity and quantity
demanded. This relationship can be expressed in the form of a demand schedule or demand curve.
Demand Schedule: It is a statement depicting the quantity demanded of a commodity at different prices. Demand can be drawn
based on demand schedule.
Law of demand (or Law of downward-sloping demand): As per this law, the quantity demanded of a commodity is related to its price
(other things remaining same). At a higher price, the quantity demanded is lower and at lower price, the quantity demanded is higher.
(There is inverse or negative relationship between two).
The quantity demanded may also be affected because of 2 other reasons (I) Substitution Effect, called Cross Demand (2) Income Effect
called income demand.
Cross demand relates to the effect on quantity demanded of a product, dueto~ehangein•price of-a related commodity. (Example : Effect on
demand for petrol, due to change in price of cars).
Income demand relates to the effect on quantity demanded of different-products, due to change in the income of the consumers.

causes of movement of demand curve (or fortes being the demand curve) : The demand curve movement is affected by the following
reasons:
1. Change in average income of the consumer affects the demand for commodities (increase in income leading to high demand).
2. Size of the market also affects the quantity demanded. (Delhi market for a particular commodity is much larger than the Patna market)
3. Price and availability of related commodities (increase in price of its substitute commodity, increases the demand for a commodity).
4.Taste and preference of certain goods, also affect their demand.
5. Seasonal factors also affect demand (say demand for umbrella in rainy season). Shift in demand
When there is change in demand of commodities due to factors other than the price, it is called shift in demand. These factors can
be change in income of consumers or change in prices of related commodities. This has been shown in the diagram given below.
In this case, there is increase in average income of the consumers, leading to increase in quantity demanded.
Supply Schedule: It shows relationship between the market price of a commodity and the quantity supplied by producers /
suppliers. Higher the price of a commodity, higher the quantity, the suppliers would like to supply. Lower the price, the
producers will tend to supply lower quantity.
Factors behind Supply Curve movement : The following factors affect the movement of a supply curve:
Cost of production to the manufacturer.When cost is low compared to market price, there is high profit and producers tend to
supply more. When cost is high, profit is low and producers will switch over to other products.
Prices of inputs : When input prices are high, it leads to low profit. Hence low production. Technological advancements : Better
technology brings the cost low. Hence more profit and more production. Prices of related commodities : If production of onesubstitute
increases, the production of other will decrease. Govt. policy : Environment and health issues determine the technology to be used. Tax and
wages laws increase the cost of production.
Shift in supply : Whenever there is change in supply of a commodities due to factors other than the price of that commodity, this is
called shift in supply, as reflected below:
Equilibrium of supply and demand
Depending upon their prices, the consumers demand different quantity of goods and sellers offer different quantity of commodities.
But the demand and supply interact to produce an equilibrium price and quantity or market equilibrium. In other words, the
market equilibrium is a situation where the forces of demand and supply are in balance. At that point there is no reason for
change in price, other things remaining same.
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