Short notes on demand and supply for the students studies economics as a out-course or in-course.
demand,law of demand,demand function,demand curve,change in quantity demand, change in demand,determinants of demand,
supply,law of supply,supply function,supply curve,change in quantity supply, change in supply,determinants of supply.
1. Demand :
Demand refers to the willingness and ability of consumers to purchase a given
quantity of a good or service at a given point in time or over a period in time.
In economics Demand referring to 3 basic characteristics :-
a) Desire to purchase goods and services
b) Ability to purchase the specific goods and services
c) willingness to pay a price for that specific goods or services
Demand are two types:
a) Individual demand : refer to the quantity of a commodity that a
consumers is willing and able to buy, at each possible price during a
given period of time.
b) Market demand : refer to the quantity of a commodity that a consumers
are willing and able to buy, at each possible price during a given period
of time.
desire willingness Ability to
purchase
DEMAND
Made by Khandaker Jannatul
Ritu(CSE,CoU)
2. Law of demand : Law of demand states that holding all other factors constant,
an increase in the price of a good or service will decrease the quantity demanded
and a decrease in the price of good or service will increase the quantity
demanded .
Law of demand states the inverse relationship between price and quantity
demanded, keeping all other factors constant ( ceteris paribus).That is:-
Assumptions :
1. prices of substitute goods do not change
2. price of complementary goods remand constant]
3. income of the consumer remains the same
4. there is no expectations of change in price in the future
5. tastes and preferences of the consumer remain the same
Graphical view :
Here P (increase in price ) → D (decrease the quantity demanded)
And P (decrease in price ) → D (increase the quantity demanded)
Made by Khandaker Jannatul
Ritu(CSE,CoU)
3. Representing demand : Demand is represented by the whole
demand schedule and the entire demand curve.
Demand schedule : Demand schedule is a table that lists the quantities of a
good a consumer is willing and able to buy at each price level in a given time
period, when all other things remain the same.
Demand schedule is the numeric presentation of the demand law.
Demand schedule are 2 types :
a) individual demand schedule : it is the demand schedule of an
individual buyer.
b) market demand schedule : it is the demand schedule of all buyers in
market. It is horizontal summation of individual demand.
a) Individual demand schedule b)market demand schedule
Made by Khandaker Jannatul
Ritu(CSE,CoU)
4. Demand curve : (what does the demand curve shows:)
Demand curve shows the inverse the inverse relationship between price and
quantity demanded along with the curve . it is a graphical representation of
demand schedule .
The demand curve will move downward from the left to the right, which
expresses the law of demand—as the price of a given commodity increases, the
quantity demanded decreases, all else being equal. The maximum price a
consumer is willing to pay for that quantity of a good or service is the measure of
marginal benefit that the consumer receives for that unit of output.
It can be considered as the willingness-and-ability-to-pay curve. Because of the
law of demand, demand curve has negative slope(is downward sloping).
Graphical view of demand curve :
Change in quantity demanded: (movement along the demand curve)
The quantity demanded (Qd) of a good or service is a specific amount that
consumers are ready (they plan) to buy at a particular price during a given
period of time assuming other factors influencing the purchase of goods and
services are constant.
Change in quantity demanded occurs due to change in price leads to
movement along the demand curve either downward movement or upward
movement.
Downward movement is known as expansion movement : occurs due to
decrease in price.
Upward movement known as contraction in demand : occurs due to increase
in price .
Made by Khandaker Jannatul
Ritu(CSE,CoU)
5. Expansion in demand : Refers to a rise in the quantity demanded due to a fall
in the price , other factors remaining constant.
It leads to a downward movement along the same demand curve. It increase
the quantity demanded.
** what are the reasons that causes the falling of quantity demand as price
increase?**
Contraction in demand : Refers to a fall in the quantity demanded due to a rise
in the price, other factors remaining constant.
It leads to a upward movement along the same demand curve. It decrease the
quantity demanded.
Made by Khandaker Jannatul
Ritu(CSE,CoU)
6. Change in demand(shift in demand): change in demand occurs
due to change in factors other than price leads to shift in demand curve either
rightward shift or leftward shift.
Rightward shift also known as increase in demand : occurs due to favourable
change in other factors at the same price.
Leftward shift also known as decrease in demand: occurs due to unfavourable
change in other factors at the same price.
Together right-shift and left-shift of demand curve:
Reasons for shift in demand curve:
a) change in price of substitute goods
b) change in price of complementary goods
c) change in income of consumers
d) change in tastes
e) change in population , season
Made by Khandaker Jannatul
Ritu(CSE,CoU)
7. #what are the determinant of demand curve?**(no idea)
Determinants of demand: (Factors that affect the Demand)
1. price of goods
2. income of buyers
3. prices of related goods or services
4. tastes of consumers
5. expectations
qD = f (price, income, prices of related goods, tastes, expectations)
1. Price of goods : There exists and inverse relationship between price and
quantity demanded. It means, as price increase quantity demanded falls.
2. Income of buyers: When income rises, so will the quantity demanded. When
income falls, so will demand.
3. Price of related goods : demand for the given commodity is also affected by
change in prices of the related goods. These are two types:
a) substitute goods(tea and coffee)
b) complementary goods(tea and sugar)
4. Tastes : When the public’s desires, emotions, or preferences change in favor
of a product, so does the quantity demanded.
5. expectations : When people expect that the value of something will rise,
they demand more of it.
Made by Khandaker Jannatul
Ritu(CSE,CoU)
8. Effects of change in consumer income:
When income rises
- the demand for normal good increase
- the demand for inferior good decrease.
When income falls
- the demand for normal good decrease
- the demand for inferior good increase.
Made by Khandaker Jannatul
Ritu(CSE,CoU)
9. For a normal good : an increase in income increases demand for the good and
shifts the demand curve rightward.
Example- include cloths, cars, vacations.
For an inferior good : an increase in income decreases demand for the good
and shifts the demand curve leftward.
Examples used cars , used furniture, Intercity bus .
Made by Khandaker Jannatul
Ritu(CSE,CoU)
10. Effects of change in prices of related goods :
The effect of related goods depends on whether they are substitute goods or
complementary goods.
Substitutes: Substitute goods in consumption are goods that can be used or
consumed in place of one another.
For example, Pepsi and Coke, black pen and blue pen that we usually use in
class, oil fuel versus nuclear fuel.
When two goods are substitutes in consumption, then a rise in the price of one
good will increase demand (shifts demand curve rightward) for the other good
and the opposite is true for the decrease in the price of the first good.
Made by Khandaker Jannatul
Ritu(CSE,CoU)
11. Complements : : Two goods are complements in consumption if they are
normally consumed together.
For example- cars and gasoline, DVDs and DVD players, sugar and tea, etc
When two goods are complements in consumption, then an increase in the
price of one of the goods will decrease the demand for the other good and the
opposite is true.
For example, the demand for rented DVDs would increase and the demand
curve will shift rightward if the price of DVD players decreases.
The demand function :
Made by Khandaker Jannatul
Ritu(CSE,CoU)