Demand and Supply Analysis

Unit II

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individual’s holistic development to make effective Love of Fellow Beings | Social
contribution to the society in a dynamic environment Responsibility | Pursuit of Excellence
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Objectives

• To understand the basics of demand and supply and their

relevance in economic decision making
• To explain law of demand and exceptions to the law
• To analyze the different determinants of demand and supply
and their effects on demand and supply curve
• To develop an understanding of demand and supply f
function in determining market equilibrium
• To introduce the concept of market equilibrium and
disequilibrium

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Highlights

• India’s population is 1378.22 million by 2030 and growth of

urban is expected to grow by 38% this may raise the need for
increase in demand of food
• Indian carbon vision 2025 report estimates that the demand for
natural gas is expected to show a sharp rise in future
• A new restaurant opens up in town and gets great reviews, that
there are only 12 tables but everyone wants to get reservation,
what could be the factors for gap?
• Growth of IT/ITES sector is moving up tremendously Is the
need moving more up indicating skill

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Market and Elements

• Basic terms like wants, needs and desire which hear close resemblance
with demand followed by dimension of demand and law of demand
• Focus of supply and finally would see how the interaction between sellers
and buyers of a good or service at a mutually agreed up to price
• Market: Refers to the interaction between sellers and buyers of a good or
service at a mutually agreed upon price
• Demand is defined as that want need or desire which is backed by
willingness and ability to buy a particular commodity in a given period of
time
• Is the quantity of commodity which consumer are willing to buy at a given
price for a particular unit of time

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Demand and Types on the basis of the nature of goods demanded (consumer and
capital goods) time unit for which it is demanded (short run and long run)

• Types Determinants of Demand

• Direct or derived or • Price
autonomous • Age, income, gender
• Capital Demand • Prices of related goods
• Recurring Demand • education, profession,
• Replacement Demand social cultural norms,
• Complementary Demand advertising play a role in
• Competing demand developing taste and
• Close Substitutes preferences
• Individual demand • Taste and preferences
• Market Demand • Advertising

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Demand Function

• Law of demand • Exception to law of

• Reasons behind law of demand
demand • Giffen good
- Price effect • Snob appeal
- Substitution effect
- Income effect • Demonstration effect
- Law of diminishing • Future expectations of
marginal utility prices
• Demand schedule and • Insignificant proportion
demand curve of income spent
• Shift in demand curve • Goods with no
substitutes

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Supply Function

 Refers to the quantities of a Law of supply

good or service that the • Supply schedule and
seller is willing and able to supply curve
provide at a given price at a • Shift in supply curve
given period of time • Market equilibrium
 Determinants of supply • Excess supply
- price of the commodity • Excess demand
- Cost of production • Price adjustment
- State of technology mechanism
- Number of firms • Changes in market
- Government policies equilibrium

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