This document provides an overview of demand and supply basics. It defines demand as people's want or need for a good or service backed by their ability and willingness to pay. It explains how to draw a demand curve by plotting a demand schedule that shows quantity demanded at different price points. The key features of a demand curve are that it slopes downward, showing an inverse relationship between price and quantity demanded due to diminishing marginal utility. Movement along the curve represents a price effect, while a shift in the curve can occur due to non-price factors like changes in income, substitute prices, or expectations. The document uses the example of water demand in Kathmandu to illustrate these concepts.

1. Basics of Demand and Supply
Unit 2, Chapter 2

2. Demand
What is demand in economics?
People’s want or need of a certain good
or service backed by ability and
willingness to pay
How is this demand any different from
any other type of demand? Like Political
demand?

3. Drawing a demand curve
Suppose, I will pay you Rs.10/- per hour,
how many of you will be willing to work
for me?
What if I raise this pay to Rs.20/- per
hour,
If I raise it further to Rs.50/- per hour?

4. Demand curve
 A demand curve requires a demand schedule
before it can be drawn
 A demand schedule describes the demand for
a commodity/ service at any given point of
time at various prices offered in the market
 Demand curve then plots out the demand
schedule on a graph

5. Key features of Demand curve
 Demand curve shows the negative relationship
between price and quantity demanded
 It slopes downward. Why?
 Because the satisfaction that we get by
consuming any commodity reduces as we go
on consuming that commodity. This is called
the law of diminishing marginal utility.

6. Movement along the demand curve
Suppose the price of apples goes down,
what happens to the demand of apples?
What happens to the demand curve in
this case?
This case simply shows us the ‘price
effect’ in a demand curve i.e. this is a
movement along the existing demand
curve.

7. Shift in demand curve
 There are other things beside price that affect
demand. What are some of these factors?
 E.g. there is a change in income i.e. income
increases. How would this get reflected on the
demand curve of the consumer?
 As a result of changes in these other factors,
the demand curve shifts either to the left or
right.

8. Factors making demand curve shift
Change in income
Prices or availability of substitutes
Prices or availability of complementary
goods
Changes in weather, fashion, fad
Change in the number of buyers
Change in expectations of the availability of
the good

9. Theory into practice
There has been talk of the Melamchi Water
project for a long time. The Water
Corporation definitely hasn’t been able to
meet the demand of the residents of
Kathmandu Valley. If Melamchi comes then
there is talk of water being abundantly
available. Until then, we have to rely on the
price fixed by the Water Corporation and pay
it irrespective of how much is being supplied.

10. Questions to think over and answer
 Does the law of diminishing marginal utility apply to
water? If yes, how? If no, why?
 Is water substitutable in the ‘economic’ sense? If yes,
how? If no, why?
 When the price of water goes up, will we start
demanding less of it? How/why?
 Given the scarcity of water, if my income increases,
then I will start buying water from ‘Tankers’. What
does this represent in my water demand curve?

11. Page 56, Q No. 7
To be done and submitted
individually in class today