Question

what is your opinion about demand and economy supply?

Answer 1

Demand

Demand and supply are two opposing forces in a market. Demand represent the various quantities of a commodity that the consumers are willing to purchase at various levels of prices. The supply represents the various quantities of a commodity that the sellers are willing to sell at various prices. The demand is inversely related to price. As price falls the consumers are willing to purchase more units of a commodity and less at a higher price. If we plot the quantity of a commodity demanded at various price, we get the demand curve of a commodity. The demand curve is downward sloping which shows the inverse relation between price and quantity demanded. The basic determinant of demand is price. The demand also changes due to changes in factors other than price such as price of the related goods, income of the consumers, taste and preferences, expectation of market changes. The changes in demand due to changes in price of the commodity can be divided into extension and contraction of demand. Extension of demand is the movement down along the demand curve. It happens when price falls. On the other hand contraction of demand is movement up along the demand curve. It is possible when the price of the commodity increase. When other factors other than price changes the demand curve shift rightward and leftward. Such changes are known as increase in demand and decrease in demand. In case of increase in demand more is demanded at the same price and in case of decrease in demand less is purchased at the same price.

Supply.

Supply is the quantity of a commodity that the sellers are offered for sale at different possible price. The supply is also related to price. At higher price the sellers supply more and at lower price the sellers supply less. The curve which shows the various quantities offered for sale at different price is the supply curve. It slopes upward from left to right. The upward slopes show the direct relation between price and the quantity supply. Like the demand, the basic determinant of supply is the price of the commodity. It also changes with the factors other than price such as price of the related goods, number of firms in the industry, goal of the firm, price of inputs, technology, business expectation and government policy. The changes in supply due to price change are divided into extension and contraction of supply. Extension of supply is the increase in quantity supplied when own price of the commodity increase. The supplier moves up along the supply curve. The contraction of supply is the decrease in quantity supplied when own price of the commodity decrease. The supplier moves down along the supply curve. The changes in supply due to changes in factors other than price are divided into increase and decrease in quantity supplied. Increase in supply is more is supplied at the same price. Here the supply curve shifts rightward. Decrease in supply is less is supplied at the same price. The supply curve shift to the left.

The equality between the demand and supply brings a market is in equilibrium. When the market is in equilibrium, the quantity demanded is exactly equal to the quantity supplied. Such quantity is known as equilibrium quantity and the price is known as equilibrium price. When the market is in equilibrium both sellers and buyers get maximum satisfaction.