Definition of Demand
Demand is defined as the quantity of a good or service a buyer is willing to purchase at a certain price and at a specific time.Demand is the fundamental factor which regulates all economic activities.
Desire or wanting alone is not enough to create demand. Therefore, desire, availability of money and willingness to pay leads to a demand. Demand for a good depends upon several factors. They include changes in the price of a commodity, changes in income of people and changes in preferences of buyers.
Factors determining individual demand:
Demand is not dependent on price alone many other factors affect the the demand of a product.
Price and quantity are inversely related it means increase in price reduces the quantity and decrease in price increases the quantity.
Consumer's income and quantity demanded are generally positively related. When the income increase the demand increases and vice versa.
Consumption choices are also influenced by the alternative option available to users in the relevant market place.
Complementary goods are those goods which are used jointly and consumed together. For example when price of cars rise people prefer to travel in public transport trains under such conditions the demand of petrol would decrease.
Substitute goods are perceived by the consumer to be alternatives to a product . There is a direct relation ship between the demand for a product and the price of its substitute. Increase in the price of tea leads to increase demand of coffee as people substitute tea with coffee.
Factors determining market demand:
When the major portion of national income is concentrated in the hands of rich people the demand of luxury goods will increase vice versa.
Increase in population leads to more demand for all types of goods and decrease population means less demand for them.
Demand for commodities also depend upon the climate of an area and weather.Example woolen clothes in winter, umbrellas in summer and rainy seasons..
Law of Demand
The Law of Demand states the inverse relationship between the quantity demanded and price.
Characteristics of Law of Demand
General Tendency: It indicates changes in demand with the changes of in prices.
Relation to time: It is related to time, because the prices change from time to time and these are never fixed.
Price and Demand relationship: The increase in the prices does not affect the quantity demanded at a particular time.
Definition of Supply
In Economics, Supply is defined as the quantity of a particular commodity which a seller is ready to sell at a given. It means the quantity of products available in markets for customers to buy.
Supply of goods also depends on certain factors. They are the price of products , the methods involved in producing the products, prices of raw materials and the number of suppliers in the market.
Factors governing the Supply
Other things remaining same, It is more profitable to sell a commodity at a higher price. So it is natural for sellers to offer more of a commodity as the price ascends.
Prices of related commodities affect the relative profitability of a commodity and its supply is influenced. If the price of nylon and silk clothes have risen the prices of cotton clothes do not alter.
Natural conditions play a very important role in the supply of products example agricultural products which are affected by rain, floods frost etc.
Law of Supply
the law of supply is just the reverse of the law of demand . The law of supply expresses the relation between the price of a commodity and its supply.
Definition of law of supply
Other things remaining the same, when price rises supply extends and when price falls supply contracts.
This law states that the supply of commodity increases on increase in its price and decrease on a decrease in its price. There is a direct =relation ship between the price and the supply of a commodity.
Demand is inversely related to price and supply is directly related to price.
The price at which the supply of a commodity equals its demand is known as the equilibrium price of the commodity. When the demand or supply of a commodity changes, the equilibrium price changes too.
The equilibrium price
Equilibrium price is the price at which quantity demanded by the consumer equals the quantity supplied by the producer . This is the point where both sellers and buyers are happy with the price and quantity.