Law Of Demand And Supply.

In this blog post we will discuss market forces,i.e demand and supply and topics related to them.

Before discussing what supply and demand is? Let's duscuss first what is makret?

Market

A market is a place where buyers and sellers come together to exchange goods and services at a mutually agreed upon price. This can include physical locations, such as a farmers' market or a stock exchange, or virtual marketplaces, such as online retailers. The term "market" can also refer to the overall economic environment in which a particular product or service is bought and sold, such as the housing market or the stock market.

In simple words, Market is a place/platform( like amazon, flipcart etc.) ,where buyer who wants to purchase and a seller who wants to sell (anything either good or service) came  in contect and exchange happen.

Markets are broadly classified into "input" ( factor service) markets and the "output" (goods and non-factor services) markets. Firms and the households are the two key players, the two decision making units. Each player has to play dual role, each one supplies and demand something. The household supply inputs and demand outputs. Firms supply outputs and demand inputs.

What is Demand

Demand refers to the quantity of a product or service that consumers are willing and able to purchase at a given price. In other words, it is the desire and ability of consumers to buy a particular product or service. The law of demand states that, in general, as the price of a good or service increases, the quantity demanded decreases, and as the price decreases, the quantity demanded increases, ceteris paribus (all other things being equal).(ceteris paribus is the condition).

In other words, demand means yhe quantity of a good one is wiilling to buy at a given price during a period of time. Hiw much quantity he/she will buy is determined by a large no. of factors. The main factors are extent of liking, the purchasing power, the price, the market for subsitute and complementary goods, the future trend of the market, the future income, etc.

Law of demand

The law of demand states that, all other things being equal, the quantity of a good that consumers are willing and able to purchase decreases as the price of the good increases. Conversely, the quantity demanded of a good increases as the price of the good decreases. This relationship is represented by a downward-sloping demand curve.

The law of demand is based on the concept of utility, which refers to the satisfaction or benefit that a consumer derives from a good or service. As the price of a good increases, the utility derived from the good decreases, and consumers will be less willing to purchase it. Additionally, as the price of a good decreases, the utility derived from the good increases, and consumers will be more willing to purchase it.

The law of demand is subject to several exceptions or qualifications. For example, the law of demand assumes that consumers have perfect information about a good and that their tastes and preferences do not change. However, in reality, consumers may not have complete information about a good, and their tastes and preferences can change over time. Additionally, there are some goods for which the law of demand does not hold true. These are known as Giffen goods, which are goods for which the quantity demanded increases as the price increases, because the good becomes a luxury item and more valuable.

The law of demand is a fundamental concept in economics, and it is a key determinant of market equilibrium. The intersection of the demand and supply curves determines the market price and quantity for a good. The law of demand is also important for understanding consumer behavior and for making decisions about pricing, production, and marketing strategies.

 Demand curve : shift in demand curve.

Demandcurve shows the rekation between only the own price and demand. Factirs other then own price are assumed to be unchanged. If the other factors change, the existing demand curve is no longer valid and new demand curve emarges. The emergence of new demand curve is called  'shift of demand curve'.

When there is no change in other factors(certicus peribus) and demand change only due to own price, the change is depicted along the existing demand curve. It is called movement along demand curve.

In simple words shift is denoted as change in demand. The movement along the curve is denoted as change in quantity demanded.

If Change in demand is positive is called increase, and negative is called  decrease. The change in quantity demanded, if positive, is called extension and if negative is called contraction.

What is Supply?

Supply refers to the amount of a good or service that is available to be purchased by consumers. It is determined by the quantity of goods or services that a producer is willing and able to offer for sale at a given price. In a competitive market, the supply of a good or service will be determined by the decisions of individual producers, who will seek to maximize their profits by adjusting their production levels in response to changes in market conditions.

The supply of a good or service is typically represented by a supply curve, which shows the relationship between the price of the good or service and the quantity of it that will be supplied. As the price of a good or service increases, the quantity supplied will typically increase as well, as producers are willing to produce more at higher prices. However, there is a point at which the quantity supplied will reach its maximum, and further increases in price will not result in any additional production.

Factors that can affect the supply of a good or service include the availability of resources, technology, and production costs. For example, if the cost of raw materials increases, producers may be less willing to produce as much of a good or service, resulting in a decrease in supply. Conversely, if new technology is developed that makes production more efficient, the supply of a good or service may increase.

In general, supply is a fundamental concept in economics that helps to explain how prices are determined and how goods and services are allocated in a market economy. It is an important consideration for both producers and consumers, as it can affect the availability and affordability of goods and services. Understanding the dynamics of supply is essential for making informed decisions about production, consumption, and investment.

Supply must be qualified with the price, the quantity supplied at that price and the time period. 

Supply means the quanntity of a good a firm or an industry is willing to supply at a give price during a given period of time.

Any factor that influence price and cost of product influence the supply of product.

Law of supply

The law of supply states that as the price of a good or service increases, the quantity of it that will be supplied will also increase. Conversely, as the price of a good or service decreases, the quantity supplied will decrease. This relationship is represented by a supply curve, which is typically upward-sloping, showing the positive relationship between price and quantity supplied.

The law of supply is based on the principle of profit maximization. Producers will seek to produce and sell as much of a good or service as possible at the highest possible price. As the price of a good or service increases, it becomes more profitable for producers to produce and sell more of it. As a result, the quantity supplied will increase.

The law of supply is not absolute and there are some cases where it may not hold true. For example, if a good or service is inelastic, meaning that consumers will continue to purchase it regardless of price changes, then the law of supply may not apply. Additionally, if there are significant barriers to entry in a market, such as high production costs or regulations, then the law of supply may not hold true.

The law of supply plays an important role in determining prices in a market economy. It helps to explain how prices are determined and how goods and services are allocated. Understanding the law of supply is essential for making informed decisions about production, consumption, and investment. It is also important for policymakers to consider when making decisions about taxes, subsidies, and regulations that can affect the supply of goods and services.

Supply Curve

 Supply curve is determined by the cost behaviour. The cost behaviour in turn is determined by the changing trend of prices in the input market. If producing higher quantity of a product leads to higher per unit cost, the firm would be willing to supply more only at a higher price. This means a direct relation between price and supply, and an upward sloping supply curve.

If  producing higher quantity leads to lower per unit cost, the firm may be willing to supply more even at a lower price.  This means a downward sloping curve. If per unit cost is same , supply curve may also ve parallel  to the X-axis.

Shot run supply curve is always upward sloping. Long run supply curve can be of any shape depending upon behaviour of input markets. But generally a long run supply curve is also taken to be upward.

Shift of supply curve

Shift signifies change in supply due to other factors other then own price of the product. Graphically it is called 'shift of supply curve'. When supply changes due to own price is called movement along the supply curve.

The change is supply, if positive is called increase and if negative is called decrease. The change in quantity supplied, if positive is called extension and if negative is called contraction.