Supply & Demand Analysis !

INTRODUCTION :

Economics is all about human behavior, concerned with allocation of scare means in such a way that consumers can maximize their satisfaction, producers can maximize their profits and society can maximize its social welfare. It is broadly classified into two parts :

• Micro economics
• Macroeconomics

Microeconomics studies economic relationships or problems at an individual level whereas Macroeconomics studies economic relationships and and problem at level of economy as a whole. Despite being different branches of economics, both are interrelated to each other.

SUPPLY AND DEMAND ANALYSIS :

In microeconomics, supply and demand are the important determinants of market. In order to analyse market and to understand demand and supply analysis, it is important to understand both Demand and Supply, Shift in demand and supply as well as how it will bring equilibrium situation in market.

# DEMAND :-

Demand refers to quantities of a commodity that the consumers are willing and able to buy at each possible price of a commodity during given period of time.

#DEMAND CURVE :

There are a number of variable that effects the demand of a product such as price of goods, price of other goods, income and preference of consumer etc. In basic economic analysis, all factors except the price of the commodity are often held constant. Thus the analysis, other things remaining constant, express the relationship between different quantities of demand at different prices.

Demand curve is simply a graphical representation of demand and price relationship. In this diagram, the price is shown on Y axis and quantity demanded is shown on X axis. DD is a demand curve. Every point on demand curve shows relationship between price and demand. The demand curve slopes downward from left to right indicating that at higher prices, demand is less and at lower prices, demand is more.

#LAW OF DEMAND :

The law of demand states that, other things remaining constant, quantity demanded of a commodity increase with fall in prices and diminishes when prices increase. In other words there is an inverse relationship between price and quantity demanded.

 

# SUPPLY :-

Supply refers to quantity of goods offered for sale, in a given market at a given time, at various prices. OR  In simple sense, Supply refers to quantity of commodities offered for sale corresponding to different possible prices at a point of time.

#SUPPLY CURVE :

There are a number of variable that effects the quantity supplied of a product such as the prices of substitute products, the production technology, the availability of cost & labour and other factors of production. In basic economic analysis, all factors except the price of the commodity are often held constant. Thus the analysis, other things remaining constant, express the relationship between various prices and the quantity potentially supplied at different prices.

Supply curve is a graphic representation of price and supply relationship, indicating positive relationship between price of commodity and its quantity supplied. SS is the supply curve. It has positive slope meaning thereby that as the prices rises, the supply extends.

#LAW OF SUPPLY :

It states that other things remaining constant, quantity supplied of a commodity increases with increase in price and decreases with fall in its price.

# MARKET EQUILIBRIUM :

In locating, equilibrium price, one has to determine the price where the market demand is equal to market supply.

In simple words, Price corresponding to which, what the buyers are willing to buy is equal to what the sellers are willing to sell. such a price is called equilibrium price.

Above table shows that when price of product is increased to p1, It is a situation of excess supply. With a view to reduce the excess stock, the seller will reduce the price and fixes it to EP. At this price its demand and supply becomes equal,Hence it is an equilibrium price.

If the price of product is reduced to p2, then the supply will be less than demand. Demand being less than supply, there will be tendency for the price to rise. It represents a situation of shortage. This shortage of supply or the excess of demand over supply will push the price back to equilibrium level.