demand curve, supply curve, law of demand & law of supply

1. Demand and supply
Dr. Arifa Saeed

2. Demand & Supply
Demand
• Desire + P.P
• Ability to buy + willingness to buy
• It is regarded as the willingness and
ability of “consumers” to buy
goods and services at given prices
over a certain period of time.
Supply
• Stock + sale
• Volume of Products + willingness to
sell
• It is regarded as the willingness and
the ability of “sellers” to sell goods
and services at various prices over a
period of time.

3. Demand & Supply
Demand
• P↓ Qd↑
• P ↑ Qd↓
• 𝑄𝑑 𝛼 1/𝑃 ( Qd is inversely proportional
to P level)
• It is a curve that shows relationship between
price and quantity demanded of a product.
• It helps to highlight the inverse relationship
between price and quantity demanded.
Supply
• P↓ Qs↓
• P↑ Qs↑
• 𝑄𝑠 𝛼 𝑃 ( Qs is directly proportional to P level)
• The slope of the supply function i.e. ΔQ/ΔP is
positive.
• There exists a direct and positive relationship
between price and quantity supplied of a
commodity.

4. Demand & Supply
Law of Demand
• If other things do not change
i.e. ceteris paribus, quantity
demanded falls as prices rises
and vice versa. This marks that
demand has an inverse (i.e.
negative slop) relationship with
price.
Law of Supply
• Other things remaining the
same, if the price of a
commodity increases its
quantity supplied increases and
if the price of a commodity
decreases, quantity supplied also
decreases.

5. Demand & Supply
Assumptions of the law of
demand (exogenous factors)
• There is no change in income of consumers.
• There is no change in the price of product.
• There is no change in quality of product.
• There is no substitute of the commodity.
• The prices of related commodities remain the same.
• There is no change in customs.
• There is no change in taste and preference of consumers.
• The size of population remains the same.
Assumptions of the law of
supply (exogenous factors)
• The assumptions of the law of supply are as under:
• No change in cost of production
• No change in technology
• No change in climate
• No change in prices of substitutes
• No change in natural resources
• No change in price of capital goods
• No change in political situation
• No change in tax policy

6. Endogenous factors
• Internal factors
• Those variables which are present in
the model
• These variables are always on axis
• Price and Qd
• Contraction or extension
Exogenous factors
• External factors
• Those variables which are not present
in the model
• These variables are not on axis
• Income, fashion, taste, customs, etc.
• Rise or fall