Question

In: Economics

Explain in details the supply and demand model .

Explain in details the supply and demand model .

Solutions

Expert Solution

Answer :- Supply model denotes to the quantity of a commodity that a seller (or a producer) is willing to sell at a given price in a given period of time. There is a direct relationship between the price of a commodity and its quantity supplied. The quantity supplied of a commodity rises with rise in its price and falls with a fall in its price. The main factors affecting the supply of a commodity are : (i) Price of the commodity, (ii) Technological changes, (iii) Prices of factors of production or inputs, (iv) Amount of excise duty and (v) Prices of related goods.

Demand model denotes to the quantity of that commodity which an individual (or buyer) is willing to purchase at different prices within a given period of time. There is an inverse relationship between price of a commodity and its quantity demanded. The quantity demanded of a commodity rises with fall in its price and falls with a rise in its price. The important factors that affect an individual demand for a commodity are :- (i) Price of the commodity, (ii) Income of individual consumer, (iii) Tastes and preferences of individual consumer and (iv) Prices of related goods (Substitute goods or complementary goods).


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