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 kg	Quantity Demanded (Qd) Kg
A	5	9
B	4	10
C	3	12
D	2	15
E	1	20

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 Kg	Quantity Supplied (Qs) Kg
A	5	18
B	4	16
C	3	12
D	2	7
E	1	0

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