Supply and Demand


Market is an institute/mechanism where buyers and sellers of products, services or resources meet. Market exists in many forms. Markets are local, national, or international. Some markets are public while some are private.


Demand is a schedule or curve showing amounts of product consumers are willing and able to buy a series of possible price over a limited time period, all else EQUAL .

Law of Demand

  • All else EQUAL as the relative price rises, quantity demanded falls.
  • Price is considered an obstacle, higher price means higher obstacle.
  • Income (fewer prices means more purchasing power) and Substitution (Substitute the cheaper product) effect also explain law of demand.
  • Diminishing marginal utility.

Market Demand

Market demand is sum of all consumers demand.

  • It is not possible to add the demands of millions of consumers so it is assumed that the same quantity is demanded by every consumer. In order to derive market demand, simply the quantity demanded is multiplied by the number of customers in the market.
  • Price and quantity substitute move in opposite direction.
  • Price is not the only factor effecting demand there are other factors as well changing of these factors result in changing of the entire demand curve. Demand curve shifts either to right or to left that’s why these are called Determinants of Demand shifters.

Determinants of Demand

  • Consumer’s tastes or preferences.
  • Number of customers
  • Price of Related goods i.e. Substitute goods and compliments goods.
  • Consumer Income, Income of related goods and unrelated goods.
  • Future expectations about prices/Product availability.
  • Income of Superior goods increases.
  • Income of Inferior goods decreases.
  • Price of substitute decreases.
  • Quantity of product increases.


Supply is a schedule or curve showing different amounts of a product that the suppliers are willing and able to supply in a limited time period.

Law of Supply

  • All else equal higher the price of a product, higher is the quantity supplied.
  • Price for supplier is displayed, the more they can earn, the more they are willing to supply.

Determinants of Supply

A part from price, there are other factors that affect supply of a product and result in shifting of entire supply curve. These factors are called determinants of supply or supply shifters.

  • Resource price
  • Technology
  • Price increases and quality decreases.
  • Taxes and subsidies
  • Price of alternative goods.
  • Future expectations about price
  • The number of suppliers Increases.

business economics

February 20, 2019