Here are the key points about the relationship between price and quantity demanded, the law of supply, and their determinants: - The demand curve slopes downward because as the price of a good increases, consumers will substitute to other goods or purchase less of the good, so quantity demanded decreases. - It is theoretically possible for a demand curve to slope upward in rare cases, such as a Giffen good where as price rises, consumers switch to it from an even more expensive substitute. - The law of supply states that quantity supplied rises as price increases, since higher prices incentivize producers to increase production. The supply curve typically slopes upward. - Determinants of supply include production costs, technology, prices of

1. AMITABH PATNAIK

2. DEFINITION
THE AMOUNT OF COMMODITY WHICH THE
SELLER(OR PRODUCER) ARE ABLE AND WILLING
TO OFFER FOR SALE AT A PARTICULAR PRICE,
DURING CERTAIN PERIOD OF TIME

3. Firms and Households:
The Basic Decision-Making Units
A firm is an organization that transforms resources
(inputs) into products (outputs). Firms are the
primary producing units in a market economy.
An entrepreneur is a person who organizes,
manages, and assumes the risks of a firm, taking a
new idea or a new product and turning it into a
successful business.
Households are the consuming units in an economy.

4. Input Markets and Output Markets:
The Circular Flow
The circular flow of
economic activity
shows how firms and
households interact in
input and output
markets.

5. Product or output
markets are the markets
in which goods and
services are exchanged.
Input markets are the
markets in which
resources—labor, capital,
and land—used to
produce products, are
exchanged.

6. Input Markets and Output Markets:
The Circular Flow Goods and services flow
clockwise. Firms provide
goods and services;
households supply labor
services.
• Payments (usually
money) flow in the
opposite direction
(counterclockwise) as
the flow of labor services,
goods, and services.

7. Supply in Product/Output Markets
• Quantity supplied
AMITABH'S SUPPLY
represents the number of
units of a product that a firm SCHEDULE FOR
would be willing and able to SOYBEANS
offer for sale at a particular QUANTITY
price during a given time SUPPLIED
period. PRICE (THOUSANDS
(PER OF BUSHELS
• A supply schedule is a table
BUSHEL) PER YEAR)
showing how much of a Rs. 1 0
product firms will supply at 1.75 10
different prices 2.25 20
3.00 30
4.00 45
5.00 50

8. Price and Quantity Supplied:
The Law of Supply
AMITABH'S SUPPLY
SCHEDULE FOR
6 SOYBEANS
5 QUANTITY
Price of soybeans per bushel (r
4 SUPPLIED
3 PRICE (THOUSANDS
(PER OF BUSHELS
)
2
BUSHEL) PER YEAR)
1
Rs. 1 0
0 1.75 10
0 10 20 30 45 50
Thousands of bushels of soybeans 2.25 20
produced per year
3.00 30
4.00 45
5.00 50

9. Price and Quantity Supplied:The Law of Supply
The law of supply states
that there is a positive
6
Price of soybeans per bushel (rs)
relationship between
5 price and quantity of a
4 good supplied.
This means that supply
3 curves typically have a
2 positive slope.
1
0
0 10 20 30 40 50 60
Thousands of bushels of soybeans
produced per year

10. Determinants of Supply
PRICE
COST OF PRODUCTION
STATE OF TECHNOLOGY
FACTOR PRICE & THEIR AVAILABILITY
PRICE OF OTHER PRODUCT
TRANSPORT CONDITION
GOVERNMENT’S POLICY
NATURAL CONDITIONS

11. ASSUMPTION UNDERLYING THE LAW OF
SUPPLY
COST OF PRODUCTION IS UNCHANGED
NO CHANGE IN TECHNIQUE OF PRODUCTION
FIXED SCALE OF PRODUCTION
GOVERNMENT POLICIES ARE UNCHANGED
NO CHANGE IN TRANSPORT COST
NO SPECULATION
PRICE OF OTHER GOODS ARE HELD CONSTANT

12. Shift of Supply Versus
Movement Along a Supply Curve
A higher price causes
higher quantity
supplied, and a move
along the demand curve.
• A change in
determinants of supply
other than price causes
an increase in supply,
or a shift of the entire
supply curve, from SA to
SB.

13. Shift of Supply Curve for Soybeans
Following Development of a New Seed Strain
 In this example, since the
factor affecting supply is not
the price of soybeans but a
technological change in
soybean production, there is a
shift of the supply curve
rather than a movement along
the supply curve
• The technological advance
means that more output can
be supplied for at any given
price level.

14. Shift of Supply Versus
Movement Along a Supply Curve
Change in price of a
good or service leads to
Change in quantity
supplied
(Movement along
the curve).

15. Shift of Supply Versus
Movement Along a Supply Curve
Change in costs, input
prices, technology, or
prices of related goods
and services leads to
Change in supply
(Shift of curve).

16. Market Equilibrium
Market equilibrium is the condition that exists
when quantity supplied and quantity demanded are
equal.
At equilibrium, there is no tendency for the market
price to change.

17. Market Equilibrium
Only in equilibrium is
quantity supplied equal
to quantity demanded.
At any price level other
than P0, such as P1,
quantity supplied does
not equal quantity
demanded

18.  Excess demand, or shortage,
is the condition that exists
when quantity demanded
exceeds quantity supplied at
the current price
.
 When quantity demanded
exceeds quantity supplied,
price tends to rise until
equilibrium is restored

19. Excess Supply
 Excess supply, or surplus, is
the condition that exists when
quantity supplied exceeds
quantity demanded at the
current price.
 When quantity supplied
exceeds quantity demanded,
price tends to fall until
equilibrium is restored

20. Changes in Equilibrium
Higher demand
leads to higher
equilibrium price
and higher
equilibrium
quantity.

21. Changes in Equilibrium
Higher supply
leads to lower
equilibrium price
and higher
equilibrium
quantity.

22. Changes in Equilibrium
Lower demand
leads to lower
price and lower
quantity
exchanged.

23. Changes in Equilibrium
Lower supply
leads to higher
price and lower
quantity
exchanged.

24. Relative Magnitudes of Change
• When supply and demand both increase, quantity will
increase, but price may go up or down.

25. Relative Magnitudes of Change
• The relative magnitudes of change in supply and demand
determine the outcome of market equilibrium.

26. University Question
Explain the relationship between price and quantity
demanded of a commodity.
Or
Describe the price or demand relationship with
suitable example.
Why does the normal demand curve slope
downward? Can there be an upward rising demand
curve? Explain with example.
Explain law of supply . What are the determinant of
supply.