Question

Define the law of supply and the law of demand. Discuss how market supply differs from individual supply, and explain the difference between individual demand and market demand.

Answer 1

The law of demand and supply is a theory which explains the interaction between supply of a resource and demand for that resource or commodity. The theory defines that the availability of a particular resource or commodity has on its price. Usually when there is low supply and high demand the prices tend to increase and vice versa.

Individual supply is the supply of an individual producer at each price and market supply is the sum of individual supply schedules of all the producers in the industry . Key to understand basic market supply is to be aware of the profit motive. Suppliers will be always looking to get the best price for their products. Supply is defined as the quantity of a specific good or service that producers are willing to provide over a given period of time. It is important to distinguish between two different types of supply that is individual and market supply. Individual supply describes the willingness of a individual firm to provide a specific quantity of a goods or services to the market over a given period of time. Market supply describes the quantity of specific goods or services that all sellers or producers in a market combined are willing to sell.

Demand is defined as the quantity of a specific good,commodity or service that consumers are willing and able to buy. It is important to distinguish between two different types of demand that is individual demand and market demand. Individual demand describes the ability and willingness of a single individual or consumer to buy a specific good or service or commodity . Market demand is defined as the quantity of a particular good or service and commodity that all consumers in a market are willing and able to buy.