Demand and Supply Curves in Economics

Fri, 08/15/2014 - 01:19 -- Umar Farooq

Demand and supply in economics, is one the major concepts and unavoidable element of market economy. Demand for a good or service is that quantity of the good or service which purchases will be prepared to buy at a given price in a given period of time.  So it is willing and power to purchase a commodity at a certain price. In economics Supply mean “an amount of a commodity or service, a seller is willing to sell is a certain price and time period.

What is Law of Demand

The quantity of a good demanded by buyers tend to increase as price of the good decreases and tends to decrease as the price increases, other thing being equal.

  1. Effective Demand. The quantity of a good that purchasers are willing to buy and are able to buy at a particular price.
  2. Individual Demand Schedule. It is a list of the amount of a good that some particular person would be willing to buy at different prices in a given period of time.
  3. Market Demand Schedule. It consists of the sum of the demand schedules of all the individual buyers in the market.

Demand Curve

Following is a graphical representation of the relationship between the price of a good and the quality demanded.

Price in KG (Rs.)

3.2

3

2.8

2.6

2.4

2.2

2

1.8

1.6

1.4

1.2

1

.80

Qty (B. Kg)

1.4

1.5

1.6

1.7

1.8

1.9

2

2.1

2.2

2.3

2.4

2.5

2.6

Both the demand schedule and curve show the quantity of wheat demanded at various possible prices. Both show that at price Rs. 2 per kilogram 2.4 billion kilogram of what are demanded. The movement along the demand curve is called Contraction and Extension (when price falls or increases), as a result of change in price.

Shift in Demand Curve

The effect of a change in the price of wheat, other things being equal, is represented by a movement along the curve for wheat for point A to point B along the curve D1. The effect of change in something other than a change in the price of wheat (change in income) is represented by a shift in demand curve as from D1 to D2.

Law of Supply

Supply offered for sale tends to expand as price rises and contract as price falls. An expected rise or fall might have a contrary effect.

Supply Curve and Schedule

Supply Curve is graphical representation of the relationship between the price of the good and the quantity supplied. While Supply Schedule is a table showing the quantity of a good supplied at various price.

Price in KG (Rs.)

3.2

3

2.8

2.6

2.4

2.2

2

1.8

1.6

1.4

1.2

1

.80

Qty (B. Kg)

2.6

2.5

2.6

2.7

2.8

2.9

2

1.0

1.8

1.7

1.6

1.5

1.4

Market Equilibrium (Interaction of Supply and Demand).

Market equilibrium is a condition in which the separately formulated plans of buyers and sellers of some good exactly meet in the market place, so at the quantity supplied exactly equals the quantity demanded at the prevailing price.

Market Price

It is the point of equilibrium at which amount demanded equals amount offered for sale. DD is demand curve, SS is supply curve, M is the equilibrium point where supply and demand curves are balanced by price.

Shortage. It is the amount by which the quantity of a good demanded exceeds the quantity supplied when the price of the good is below the equilibrium.

Surplus. It is the amount by which the quantity of a good supplied exceeds the quantity demanded when the price of the good is below the equilibrium.