Basic Law of Demand Supply (1)

Basic Law of Demand and Supply

The Market

A market is an interaction between buyers and sellers for trading or exchange. It is where consumers buy goods and sellers provide them.

Types of Markets:

• Goods Market – Where consumer goods are bought and sold.
• Labor Market – Where workers offer services and employers hire workers.
• Financial Market – Includes stock markets where corporate securities are traded.

Demand

Demand is the willingness of a consumer to buy a commodity at a given price.

Quantity Demanded (Qd): Represents the number of goods consumers are willing to purchase at a specific price.

Demand Function

Shows how quantity demanded depends on various factors, primarily price.

Equation: Qd = f(P)

Demand Schedule

Price per Bottle (P)	Quantity Demanded (Qd)
0	6
2	5
4	4
6	3
8	2
10	1

Demand Curve

A graphical representation of the relationship between price and quantity demanded.

The Law of Demand

The Law of Demand states that there is an inverse relationship between price and quantity demanded, assuming all other factors remain constant (ceteris paribus).

Non-Price Determinants of Demand

• Income: Affects demand for normal and inferior goods.
• Consumer Preferences (Taste): Improved taste increases demand.
• Expectations: Anticipated price changes affect demand.
• Prices of Related Goods:
  • Substitutes: Goods used in place of each other (e.g., butter and margarine).
  • Complements: Goods used together (e.g., cars and tires).
• Number of Consumers: More consumers lead to higher demand.

Shift of the Demand Curve

A change in price results in movement along the same demand curve, but non-price determinants cause a shift of the entire demand curve.

• Rightward Shift: Demand increases due to higher income, increased population, etc.
• Leftward Shift: Demand decreases due to lower income, decreased population, etc.