DEMAND AND SUPPLY CURVE

OnKellogg's Cornflakes’

DEMAND

“Demand refers to the quantities of a commodity that the consumers are able and willing to buy at each possible price during a given period of time, other things being equal.”

For e.g., A consumer demands 2kg of sugar in a month at the price of Rs. 20 per kg. This is a complete example of demand for a commodity as it has all the three components of demand- quantity, price and time.

MAIN FEATURES OF DEMAND

Main features of demand for a commodity are:-

1. Demand is always with reference to a specific price.2. Demand is a flow of quantities bought in a given period of time.3. Consumer should have a desire and necessary purchasing power to buy the commodity.4.Consumer should be willing to pay for the commodity.

DEMAND FUNCTIONThe Demand function may be expressed

symbolically as

Q=f (P, Pr ,Y,T,E,O)

Where ‘Q’ stands for the quantity demanded of

the Commodity, ‘P’ for the price of the commodity,

‘Pr’ for prices of related goods, ‘Y’ for income of

the consumer, ‘T’ for tastes and preferences of the

consumer, ‘E’ for the expectations for the future

prices and ‘O’ stands for the other factors

DEMAND FUNCTION OF CORNFLAKES’

So the Demand of Kellogg's cornflakes’ that includes

• Price of the product• Substitutes-local brands with less cost

• Income of the consumer• Tastes and preferencesAnd so many other factors

-The Demand function of Kellogg's is given by: Q=f(Price of cornflakes’, local brands, income, tastes and preference and other factors-flavour likes honey, wheat)

LAW OF DEMAND

The law of demand explains the relationship between two

variables- price of the commodity and the quantity of the

commodity demanded, other things being constant

Symbolically,

Dx = f(Px)

Where Dx = demand of x commodity

Px = price of x commodity

DEMAND SCHEDULE- KELLOGG’S CORNFLAKES

The numerical tabulation of the law of demand is called the demand schedule.Following table shows a hypothetical demand schedule for Kellogg’s Cornflakes’

Price(Rs per Kg) Quantity Demanded( Kg per

Month

30 4

40 3

50 2

60 (current price) 1

The demand schedule shows an inverse relationship between price and

the quantity demanded. The consumer is willing to pay 60 rupees per kg

to buy 1 kg of cornflakes each month. If the price reduces by 30 rupees ,

he/she would be willing to buy an additional one or two kg per month

and so on. This implies that lower the price more will be the demand

and vice versa.

Demand Curve

The graphical representation of the demand schedule is called a

demand curve. The Demand curve for Kellogg’s cornflakes is drawn

which shows different quantities of cornflakes demanded at different

prices in a month

Diagrammatic representation

• A downward sloping or negatively sloped demand curve relates quantity demanded to price.

SUPPLY

According to Prof. Thomas, “The supply of goods is the quantity

offered for sale in a given market at a given time at various

prices.”

Thus the supply is defined as the total quantity of a commodity

that a seller is willing to produce and sell at a given price, during

a given period.

Typically involves the terms on which businesses produce and sell

their products.

SUPPLY FUNCTIONSupply of a commodity is determined by various

factors. Supply function is a functional relationship

between quantity supplied of a commodity and

factors affecting it. Supply function can be written as

Sx =f (Px,Pr,T,F,Gp)

Where Sx= Supply of commodity X, f=function of, Px

=price of commodity X, Pr= Price of related

commodity, T= technology, F=prices of factor inputs

Gp =Government policy

SUPPLY FUNCTION OF CORNFLAKES’

So the supply of Kellogg's cornflakes that includes

•Price of the commodity•Technology they are using

•Price of related commoditiesand

•Government policies- Taxes

•So the supply of Kellogg’s cornflakes’ is given by S=f(Price, Price of other Substitutes, Technology, Govt policies)

LAW OF SUPPLY

As the price of a good increases, suppliers will attempt to maximize profits by increasing the quantity of the product sold. Or

All other factors being equal, as the price of a good or service increases, the quantity of goods or services offered by suppliers increases and vice versa.

SUPPLY SCHEDULE- KELLOGG’S CORNFLAKES’

The numerical tabulation of the law of supply is called the supply schedule.Following table shows a hypothetical supply schedule for Kellogg’s Cornflakes’

Price (Rs per Box) Quantity supplied(Boxes per

year)

60 40

50 30

40 20

30 10

The supply schedule for cornflakes shows that at a price of

cornflake box of 30, only 10 boxes will be produced in an year. At

such a low price, breakfast manufacturers might want to devote

their factories to producing other types of cereal, like bran flakes,

that earn them more profit than cornflakes. So , as the price of

cornflakes increases, even more cornflakes will be produced .

Supply curve

The graphical representation of the Supply schedule is called a

Supply curve. The Supply curve for Kellogg’s cornflakes is drawn

which shows different quantities of cornflakes supplied at

different prices.

Diagrammatic representation

• Supply curve or Supply schedule relates quantity Supplied to Price

By AN IL KUMAR.K

Prepared

Any Questions