2. Introduction Introduction of Demand and Supply.Every business
firm is interested in its own sales or profits. The sales &
profits depend, to some extent, on the demand for its product.
Demand is one of the important requirements for the existence of
any business firm. Demand & Supply are the two forces that
determine the price of the product in the market. 3. Demand Demand
is the desire to own anything and the abilityto pay and willingness
to pay for it. Demand refers to the quantities of a commodity
thatthe consumers are able and willing to buy at eachpossible price
during a given period of time, otherthings being equal. 4.
Difference between Demand andQuantity Demanded. Demand is the
quantities that buyers are willing andable to buy at alternative
prices during a given periodof time. Whereas the quantity demanded
is a specific amountthat buyers are willing and able to buy at one
price. Example: the consumers ability and willingness to buy4 ice
creams at the price of Rs 10 per ice cream is aninstance of
quantity demanded. Whereas the abilityand willingness of consumer
to buy 4 ice creams at Rs10, 3 ice creams at Rs 20 and 2 ice creams
at Rs 30 is aninstance of demand. 5. Law Of Demand According to
Marshall, The Law of demand statesthat amount of quantity demanded
increases with afall in price and diminishes when the price
increases,other things being equal. There is an inverse
relationship between price of thecommodity and demand for a
commodity. Law of Demand holds good when other things remainthe
same. it means factors influencing demand, otherthan price, are
assumed to be constant. Like Income ofthe consumer, price of
related goods, tastes andpreferences, etc. 6. Assumptions of the
Law: Consumers income should not change. consumers tastes and
preferences should not change. Prices of other products
(substitutes andcomplements) should not change. Consumer does not
expect any change in the price ofthe commodity in the near future.
7. Demand schedule Demand schedule is atable that showsdifferent
prices of a good Price per Quantity unit (Rs) demandedand the
quantity of that 1 4good demanded at each 2 3of these prices. 3 2
Example: 4 1 8. Demand CurveDemand curve is a curve that
showsdifferent quantities of a commoditydemanded by at different
prices.Y-axisThe demand curve slopes downward from4left to right
this is because when the price ishigh, the demand is low and when
the price 3is low , the demand is high. 2Price ofNow on the X- axis
we have the 1commodity.quantity of a commodity andon the Y-axis we
have the price1 2 3 4 0X-axisof the commodity.As the price
increases from P1 Quantity in unitslevel to P2 level, the demandfor
quantity decreases from Q2level to Q1 level. 9. Determinants of
Demand Price of the commodity. Price of the related goods. Income
of the consumer. Taste and preferences. Expectation of price change
of the commodity. 10. Price of the Commodity If the price of
thecommodity rises,pricedemands of theP1commodity falls,
viceP2versa. Q1Q2 quantity 11. Price of the Related Goods
Substitute goods : substitute goods are those goods which can be
substituted for each other, such as tea and coffee. Price of teaP1
Q1Q2 Demand of Coffee 12. Complementary goods : complementary goods
are those goods which complete the demand for each other, such as
car P1 and petrol. P2Q1 Q2 13. Income of the consumer An increase
in income would cause an increase in demand, such asP0 normal
goods.Q1 Q2 14. Taste & Preference A favorable change in
consumers in tastes & preferences to a product means that more
will be demanded at each price, & vice-versa. 15. Expectation
of the price change ofthe commodity If consumers expect a rise in
prices in future, they will buy more even if the present high
prices & vice-versa. 16. Types of Goods Relationship between
income of consumer & demandfor a commodity is discussed with
reference to:1. Normal Goods2. Inferior Goods3. Giffen Goods4.
Necessity Goods 17. MARGINAL UTILITY 18. Marginal utility refers to
the change in satisfaction which results when a little more or
little less of that good is consumed 19. According to the law of
diminishing marginalutility when a person consumes more and more
units ofa good his total utility increases while the extra
utilityderived from consuming successive units of the
gooddiminishes 20. EXAMPLE 21. Thirsty person takes 5 bottles of
cold drink continuously Consumption of first bottle gives him
utility Second bottle gives less utility but his total
utilityincreases Third bottle gives him still less utility but
increases totalutility Utility derived from fourth bottle may be 0
as he is nomore thirsty Fifth bottle may cause uneasiness and thus
give negativeutility i.e. total utility may actually go down 22.
Bottle Total utility Marginalconsumed utility00 -114 14223 9327
4427 0524 -3 23. total utility/marginal 30 25 20 utility 15total
utility 10marginal utility50 -5 0 24 6no. of bottles 24. Meaning of
Supply Supply is the willingness & ability of producers to make
a specific quantity of output available to consumers at a
particular price over a given period of time. 25. Law of SupplyThe
law of supply states that other things remainingconstant, the
supply of a product rises as its price rises& falls as its
price falls. 26. Assumptions of the law There should not be any
change in the cost ofproduction. There in no change in the level of
technology usedin the production process. There should not be any
kind of governmentintervention. There is no change in competitors
actions onproduct differentiation. 27. Supply Schedule The law of
supply can be Example: explained with the help Price Quantity of a
supply schedule. Supplied Supply schedule is1 12 showing how much
of a 2 28 3 42 product is supplied in a 4 52 particular market at5
60 different price. 28. Supply Curve Supply curve is a curve
sloping upwards from left to right. In short, supply curve is only
a graphical representation of supply schedule. 29. Supply Curve
Shifts Important shift in factors of supply are Changes in the
prices of inputs used in productionof a good Changes in technology
Changes in suppliers expectations Changes in taxes &
subsidiesEach of these factors will cause a shift in supply,whereas
a change in price causes a movement alongthe supply curve. 30.
Supply Function In economics, we say that the supply of a product
is a function of the product, price of related products, price of
inputs, technology, time periods, government policy, nature etc.
31. Determinants of SupplyThe various determinants of supply are as
follows:1. Price of the Product2. Prices of related Products3.
Prices of Inputs4. Change in technology5. Time Periods6. Government
Policy7. The Nature
