The demand for a commodity refers to the amount of
it which will be bought per unit of time at a particular
Demand in economics means effective demand for a
commodity. that is, one should have desire to buy a
commodity, he must be willing to pay its price and he
should have the money to be paid.
Demand implies the following
I. Desire for a commodity or service
II. Willingness to pay its price
III. Ability to pay its price
A person may have desire for a TV but unless he has
enough money to buy it, his desire cannot be said to
be a demand.
Types of demand:
Individual demand refers to the demand for a commodity from
the individual point of view. That quantity of a good a consumer
would buy at a given price during a given period of time is his
individual demand for that particular good.
Market demand refers to a total demand of all the buyers
Factors affecting demand
Nature of the demand:if the good is a basic commodity
,it will lead to a higher demand.
population:if the population grows this means that
demand will also increase.
Personal disposable income:in most cases,the more
disposable income a person has the more likely that
person is to buy.
Consumer’s expectations:a consumer’s expectation’s
about the future change is the price of a given
commodity also may effect its demand.
Types of demand situations
Negetive demand:if the market response to a
product is negetive,it shows that people are not
aware of the features of the service and the
benefits offered under such circumstances,the
marketing unit of service firm has to understand
the psych of the potential buyers and find out the
prime reason for the rejection of the service.
If people are unaware,have insufficient
information about a service or due to consumer’s
indifference this type of demand situation could
occur.the marketing unit of the firm should focus
on promotional campaigns and communicating
reasons for potential customer’s to use firm’s
At any time it is impossible to have a set of
services that offer total satisfaction to all the
needs and wants of society.
Some services do not have an all year round
demand,they might be required only certain
period of time.
The general tendency of consumer’s
behavior in demanding a commodity
in relation to the changes in its price
is described by the law of demand.
Explanation of the law.
The law of demand is usually refered to the market
The law of demand can be illustrated with the help of a
market demand schedule i.e., as the price of a commodity
decreased the corresponding quantity demanded for that
commodity increases and vice versa.
A market demand schedule for wheat.
Price of wheat per kg.
(kgs per week)
The table represents a hypothetical demand schedule for wheat. We can
see from this table that with a fall in price at each stage, demand tends
to rise. There is an inverse relationship between price and quantity
demanded .the demand curve is shown in the figure.
Assumptions of the law
No change in consumer’s income : throughout the
operation of the law, the consumer’s income should
remain the same. If the level of a buyer’s income
changes , he may buy more even at a higher price
, invalidating the law of demand
No change in consumer’s preferences : the consumer’s
tastes , habits and preferences should remain constant
No change in fashion : if the commodity concerned
goes out of fashion, a buyer may not buy more of it
even at a substantial price reduction
No change in weather conditions: it is assumed that
climatic and weather conditions are unchanged in
affecting the demand for certain goods.
No change in government policy: The level of taxation
and fiscal policy of the government remain the same
throughout the operation of the law.
Otherwise, the changes in income tax, for instance
may cause changes in consumers income or
commodity taxes may lead to distortions in consumers
It is almost universal phenomenon of the law of
demand that when the price falls, the demand expands
and it contracts when the price rises.
But sometimes, it may be observed, though, of
course, very rarely, that with a fall in price, demand
also falls and with a rise in price, demand also rises.
Cases in which this tendency is observed are referred
to as exceptions to the general law of demand.
The demand curve for such cases will be typically
There are few such exceptional cases, which may
be categorized as follows:
Giffen goods: In case of certain inferior goods
called Giffen goods, when the price falls, quite
often less quantity will be purchased than before
because of the negative income effect and
people’s increasing preference for a superior
commodity with the rise in their real income.
Few appropriate examples may be listed, such as
cheap potatoes, cheap bread, vegetable
ghee, etc., as against superior commodities like
good potatoes, cake, and pure ghee.
Commodities which are used as status
Some expensive commodities like
diamonds, expensive cars, etc., are used as status
symbols to display one’s wealth.
The more expensive these commodities
become, the higher their value as a status symbol
and hence, the greater the demand for them.
The amount demanded of these commodities
increase with an increase in their price and
decrease with a decrease in their price.
Also known as a Veblen good
Expectation of change in the price of commodity:
If a household expects the price of a commodity to
increase, it may start purchasing a greater amount of the
commodity even at the presently increased price.
Similarly, if the household expects the price of the
commodity to decrease, it may postpone its purchases.
Thus, some argue that law of demand is violated in such
cases. In this case, the demand curve does not slope down
from left to right; instead it presents a backward slope from
the top right to down left.
This curve is known as an exceptional demand curve.
Exceptional Demand Curve.
• The demand curve slopes upward suggesting a rise in
demand with rising price.
In economics , supply during a given period of time
means quantities of goods which are offered for sale at a
The supply of a commodity may be defined as the
amount of the commodity which the seller or the
producer are able and willing to offer for sale at a
particular price during a certain period of time.
Supply is a relative term.
It is always referred to in relation to price and time.
A statement of supply without reference to price and
time conveys no economic sense.
EX: a statement such as ‘the supply of milk is 500 litres
is really meaningless in economics.
One must say, the supply at such and such a price and
during a specific period.
Hence, the above statement becomes meaningful if it
is said at the price of Rs.6 per litre , a dairy farm’s daily
supply of milk is 500 litres.’
Here both price and time are reffered to with the
quantity of milk supplied.
Supply is what the seller is able and willing to offer for
sale. Ex: star CJ alive ,ebay , quiker etc
However, it depend on the stock available with him.
Thus, stock is the determinant of supply.
The elasticity of supply of commodities depends on a
number of factors such as:
1. TIME PERIOD:
Time period involved in the process of production
basically determines the elasticity of supply of a
in a functional sense, time period may be devided
into market period or very short period ,short period
and long period.
In the short period, the stock can be varied by producing
with the existing size of the plant . Thus, in the short
period, supply becomes relatively inelastic.
In the long run, the stock can be adjusted to a greater
extent by producing with a changing scale of production
, i.e. by changing the size of the plant. Thus, in the long
period, supply tends to be relatively elastic.
The elasticity of supply for a product depends on the
producers responsiveness to the change in its price.
The quantity of commodity supplied will not change
if the producers do not react positively to the increase
Producers do not always increase the quantity of
commodity supplied to a rise in price.
He may not raise supply in response to the rise in
in some developed countries, agricultural producers meet
their fixed money income by selling smaller quantities of
Thus with further rise in price they produce and sell
smaller quantities rather that more.
3)SIZE OF THE FIRM AND THE NUMBER OF
When a big firm produce a variety of products at a
time, they can be easily transfer the resources from one
product to the other so that the supply may become
4) NATURAL FACTORS:
Natural factors like climate , monsoon ,fertility of soil
, etc., considerably affect the elasticity of supply of
The supply of agricultural goods tends to be relatively
inelastic because these natural factors are beyond the
control of man.
5) NATURE OF PRODUCTION:
By its very of production , certain goods are inelastic in
Examples : art works like painting.
The law of supply expresses a relationship between
price and quantity supplied of a commodity on the
assumption that the conditions of supply remain
constant .The supply of commodity depends not
only on the price of commodity but also on several
other factors such as
The cost of factors of production :-
The cost of production of a commodity depends on
the prices of the various factors of production such as
raw materials,labour etc . When the prices of the
extensive factors of production such as raw materials
rises the cost of production will increase and if the
prices of extensive factors decrease the cost of
production will aslo get reduced . Supply will be
affected in both the cases.
The state of technology :-
The supply of a commodity also depends on the
methods of production. Advances in technology and
sciences are the most powerful forces influencing the
productivity of factors of production. New inventions
and innovations in chemistry, electronics etc have
greatly contributed to increased supplies of
commodities at lower costs with better quality.
For example:- The development of more effective
wireless technology increases the supply of cell
Change in taxes and subsidies :-
A tax on a commodity or a factor of production raises
its cost of production leading to low production and
supply. On the other hand, a subsidy provides an
incentive to production augments supplies.
For example:- An increase in the excise tax on
cigarettes reduces the supply of cigarettes; a decline in
subsidies to state universities reduces the supply of
Changes in producer expectations :-
When a producer expects that the price of the
commodity which is produced by him will increase in
the near future, he would decrease his supply so that
he can sell the same commodity at higher prices in the
For example:- An expectation of a substantial rise in
future log prices decreases the supply of logs today.
Change in the number of suppliers :-
For a particular commodity when there are less
number of suppliers the supply of the commodity
would be less and vice versa.
For example when there is an increase in the number
of tattoo parlors the supply of tattoos will be
Supply function :-
In a supply function, the determinants of supply can be
summarized as under :
Where, Sx=the supply of commodity X
Px=the price of X
Pf=the set prices of the factor
Py,….Pz=the prices of the goods
O=factors outside the economic sphere
The supply schedule refers to a table showing the
quantity of a commodity supplied at various prices
during a given period. There are two types of supply
schedules. They are :-
1) The individual seller`s supply schedule and
2) The market supply schedule.
The Individual Supply Schedule
An individual supply schedule refers to the table
representing the different quantities of a commodity
offered for supply by an individual seller at alternative
Price of commodity X Quantity supplied of
The Market Supply Schedule
The price-quantity relationship of a commodity in the
market is expressed in terms of the market supply
schedule. A market supply is the aggregate supply
schedule of all the sellers or producers in the market.
It refers to the total quantities of a given commodity
which the sellers in the market are willing to offer for
sale at various prices. Thus, the market supply
schedule is derived as the sum total of the individual
supply schedules of every seller in the market.
Price Producer A Producer B Producer C Total or
10 3 2 1 6
12 7 5 4 16
14 10 7 6 23
16 15 12 10 37
18 20 15 12 47
The law of supply states that when the other
factors remains the same, the quantity
supply increases with the rise in price and
decrease with the fall in price .thus quantity
supplied by the producer is directly
proportional to the price . The relation
between price and supply is positive .this
relation exist only when there is no change
Law of Supply
As the price of a good increases, the quantity supplied
of that good increases.
As the price of a good decreases, the quantity supplied
of that good decreases.
Does this sound familiar???
Compare the Law of Supply with the Law of
Discuss with your partner the similarities and
differences of the two laws.
• Law of Demand, an inverse relationship between price
and quantity demanded.
• Law of Supply, a direct relationship between price and
Supply Schedules and Supply Curves
Price Quantity Supplied
Typical supply curve: Upward Sloping—a direct relationship
At least two assumptions are necessary for the
validity of the standard model: first, that supply
and demand are independent; and second, that
supply is "constrained by a fixed resource" Sraffa's
critique focused on the inconsistency (except in
implausible circumstances) of partial equilibrium
analysis and the rationale for the upward slope of
the supply curve in a market for a produced
Aggregate excess demand in a market is
the difference between the quantity
demanded and the quantity supplied as a
function of price. In the model with an
upward-sloping supply curve and
downward-sloping demand curve, the
aggregate excess demand function only
intersects the axis at one point, namely, at
the point where the supply and demand
The model of prices being determined by supply and demand
assumes perfect competition.
"economists have no adequate model of how
individuals and firms adjust prices in a
competitive model. If all participants are
price-takers by definition, then the actor who
adjusts prices to eliminate excess demand is
Exhibit 1: Demand Schedule
& Demand Curve for Pizza
(a) Demand Schedule
Price per Quantity Demanded
Pizza per Week (millions)
a) $15 8
b) 12 14
c) 9 20
d) 6 26
e) 3 32
The demand schedule lists possible
prices, along with quantity
demanded at each price. The
demand curve at the right shows
each price / quantity combination
listed in the demand schedule as a
point on the demand curve.
(b) Demand Curve
8 14 20 26 32
Millions of Pizzas per week
Exhibit 3: Supply Schedule and Curve for Pizzas
12 16 20 24 28
Millions of pizzas per week
The supply curve and the supply
schedule both show quantities of
pizza supplied per week at various
prices by all the pizza makers in the
Price and quantity supplied are
directly, or positively, related:
producers offer more for sale at
higher prices than at lower ones:
Supply curve slopes upward
Price per Quantity Supplied
Pizza per Week (millions)
Exhibit 5: The Market for Pizza
Where supply and demand come together…