Concept of Demand and Supply in Economics

As pointed out in the previous article, the Price Mechanism balances the forces of Demand and Supply.

It was Adam Smith in 1776 who first used the terms Demand and Supply as corresponding concepts. Later Alfred Marshall compared them to the two blades of a pair of scissors. Indeed Demand and Supply are the two most crucial concepts of Microeconomics.

Concept of Demand

The word Demand comes from the Latin demandare, to claim or commission. Demand is desire backed by purchasing power. A buyer or consumer does not merely desire a commodity or good (or service) but has some power or wherewithal to purchase it at a price. Similarly, a seller or producer does not merely offer his commodity or good (or service) but offers them at a price.

There exists at any one time a definite relationship between the market price of a good and the quantity demanded of that good. This relationship between price and quantity demanded/bought is called the Demand schedule or Demand function or Demand curve.

One usual form that the Demand curve can take is downward-sloping from left to right. That is, there is an inverse or indirect relationship between the quantity of demand for a commodity and its price. (It is this relationship which has often been called the Law of Demand.)

The Demand Schedule below depicts this as follows:

Price (P) Rs per kgQuantity Demanded (Qd) Kg
A59
B410
C312
D215
E120
Demand Curve
Demand Curve

Prices are measured on the vertical axis, and the quantities demanded are on the horizontal. Each pair of Q, P numbers from the Demand Schedule is plotted here as a point on the Q-P plane, and a smooth curve passed through the points to yield the Demand `curve’. It slopes downwards from Left to Right, showing an Inverse or Negative relation between price and quantity.

Concept of Supply

Supply comes from Latin supplere, to fill up or complete.

There exists at any one time a definite relationship between the market price of a good and the quantity the producers of that good are willing to offer or supply. This relationship between price and quantity supplied is called the Supply schedule, function and curve.

Based on the Supply schedule below, a supply curve can be depicted. Usually, it slopes upwards from left to right.

The Supply Schedule below depicts this as follows:

Price (P) Rs per KgQuantity Supplied (Qs) Kg
A518
B416
C312
D27
E10
Supply Curve
Supply Curve

Prices are measured on the vertical axis, and the quantities supplied on the horizontal. Each pair of Q, P numbers from the Supply Schedule is plotted here as a point on the Q-P plane, and a smooth curve passed through the points to yield the Supply `curve’. It slopes upwards from Left to Right, showing a Direct or Positive relation between price and quantity.

The above Demand and Supply are individual in nature, belonging to an individual person, household or firm. In Macro-Economics, the corresponding concepts are Aggregate Demand and Aggregate Supply. They represent the total demand and supply of the economy as a whole.

Read More- Microeconomics

  1. Microeconomics: Definition, Meaning and Scope
  2. Methods of Analysis in Economics
  3. Problem of Choice & Production Possibility Curve
  4. Concept of Market & Market Mechanism in Economics
  5. Concept of Demand and Supply in Economics
  6. Concept of Equilibrium & Dis-equilibrium in Economics
  7. Cardinal Utility Theory: Concept, Assumptions, Equilibrium & Drawbacks
  8. Ordinal Utility Theory: Meaning & Assumptions
  9. Indifference Curve: Concept, Properties & Shapes
  10. Budget Line: Concept & Explanation
  11. Consumer Equilibrium: Ordinal Approach, Income & Price Consumption Curve
  12. Applications of Indifference Curve
  13. Measuring Effects of Income & Excise Taxes and Income & Excise Subsidies
  14. Normal Goods: Income & Substitution Effects
  15. Inferior Goods: Income & Substitution Effects
  16. Giffen Paradox or Giffen Goods: Income & Substitution Effects
  17. Concept of Elasticity: Demand & Supply
  18. Demand Elasticity: Price Elasticity, Income Elasticity & Cross Elasticity
  19. Determinants of Price Elasticity of Demand
  20. Measuring Price Elasticity of Demand
  21. Price Elasticity of Supply and Its Determinants
  22. Revealed Preference Theory of Samuelson: Concept, Assumptions & Explanation
  23. Hicks’s Revision of Demand Theory
  24. Choice Involving Risk and Uncertainty
  25. Inter Temporal Choice: Budget Constraint & Consumer Preferences
  26. Theories in Demand Analysis
  27. Elementary Theory of Price Determination: Demand, Supply & Equilibrium Price
  28. Cobweb Model: Concept, Theorem and Lagged Adjustments in Interrelated Markets
  29. Production Function: Concept, Assumptions & Law of Diminishing Return
  30. Isoquant: Assumptions and Properties
  31. Isoquant Map and Economic Region of Production
  32. Elasticity of Technical Substitution
  33. Law of Returns to Scale
  34. Production Function and Returns to Scale
  35. Euler’s Theorem and Product Exhaustion Theorem
  36. Technical Progress (Production Function)
  37. Multi-Product Firm and Production Possibility Curve
  38. Concept of Production Function
  39. Cobb Douglas Production Function
  40. CES Production Function
  41. VES Production Function
  42. Translog Production Function
  43. Concepts of Costs: Private, Social, Explicit, Implicit and Opportunity
  44. Traditional Theory of Costs: Short Run
  45. Traditional Theory of Costs: Long Run
  46. Modern Theory Of Cost: Short-run and Long-run
  47. Modern Theory Of Cost: Short Run
  48. Modern Theory Of Cost: Long Run
  49. Empirical Evidences on the Shape of Cost Curves
  50. Derivation of Short-Run Average and Marginal Cost Curves From Total Cost Curves
  51. Cost Curves In The Long-Run: LRAC and LRMC
  52. Economies of Scope
  53. The Learning Curve
  54. Perfect Competition: Meaning and Assumptions
  55. Perfect Competition: Pricing and Output Decisions
  56. Perfect Competition: Demand Curve
  57. Perfect Competition Equilibrium: Short Run and Long Run
  58. Monopoly: Meaning, Characteristics and Equilibrium (Short-run & Long-run)
  59. Multi-Plant Monopoly
  60. Deadweight Loss in Monopoly
  61. Welfare Aspects of Monopoly
  62. Price Discrimination under Monopoly: Types, Degree and Equilibrium
  63. Monopolistic Competition: Concept, Characteristics and Criticism
  64. Excess Capacity: Concept and Explanation
  65. Difference Between Perfect Competition and Monopolistic Competition
  66. Oligopoly Market: Concept, Types and Characteristics
  67. Difference Between Oligopoly Market and Monopolistic Market
  68. Oligopoly: Collusive Models- Cartel & Price Leadership
  69. Oligopoly: Non-Collusive Models- Cournot, Stackelberg, Bertrand, Sweezy or Kinked Demand Curve
  70. Monopsony Market Structure
  71. Bilateral Monopoly Market Structure
  72. Workable Competition in Market: Meaning and Explanation
  73. Baumol’s Sales Revenue Maximization Model
  74. Williamson’s Model of Managerial Discretion
  75. Robin Marris Model of Managerial Enterprise
  76. Hall and Hitch Full Cost Pricing Theory
  77. Andrew’s Full Cost Pricing Theory
  78. Bain’s Model of Limit Pricing
  79. Sylos Labini’s Model of Limit Pricing
  80. Behavioural Theory of Cyert and March
  81. Game Theory: Concept, Application, and Example
  82. Prisoner’s Dilemma: Concept and Example

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