BASIC ELEMENTS OF DEMAND AND SUPPLY

Sir Rizwan ul Hassan

Meaning of Demand

It is the willingness to purchase and ability to purchase a commodity.

Demand = Desire + Ability to purchase

Law of Demand

If price of a commodity falls, its quantity demanded increases and if price rises then quantity demanded decreases while other conditions remain same.

Demand Curve
30 25 20 Price 15 10 5 0 0 100 200 Quantity Demanded 300 D D

DEMAND SCHEDULE
Pairs A B C D E Price 5 10 15 20 25 Quantity Demanded 200 150 120 100 90

Individual & Market Demand

Quantity demanded a single person or a household is called individual demand. The sum of quantities demanded of all individual demands in a particular area is called market demand.

Factors affecting demand

Average income Population Price of related goods Tastes or fashions Special influences

Shift in Demand

When quantity demanded changes due to change in any factor affecting demand while prices remain same is called shift in demand.

Meaning of supply

It is the quantity of a commodity which the producers or sellers are willing to sell at a given price.

Law of supply

The quantity supplied of a commodity increases when price rises and quantity supplied decreases when price falls while other conditions remain same.

Supply Curve
60 50 S E D C S A 0 0 500 1000 1500 Quantity Supplied (QS) 2000 B

40
Price 30 20 10

SUPPLY SCHEDULE Pairs Price QS A B 10 20 0 700

C D
E

30 40
50

1200 1600
1800

Factors Affecting Supply

Technology Input prices Prices of related goods Government policy Special influences

Shift in Supply

When quantity supplied changes due to change in any factor affecting supply while price remains same it is called shift in supply or change in supply