Demand and Supply

Demand is defined as quantitative reflection of orientation of the people, at a particular price, per unit of clock time. Demand for commodity is affected by several gene such as Price, income and price of related goods. The routine of relationship between the requirement for a commodity and the factors affecting it is called demand function.

Main factors, other than price, which affect the market demand for a product are: –

• Price

The requirement for a good depends upon its toll. People prefer to buy more at a lower price and less at a higher price. Price and measure demanded are inversely related and demand curved shape slope downwards from left to right.

• Income

As the income of the consumer step-ups the quantity of demand will increase and as the income dusk the demand also reduction. Income and demand are positively correlated. Demand curvature gradient upward from left to right.

• Want, Tastes and Preferences

Demand for trade good influenced by the factors like wants of the consumer, their sense of taste, orientation and fashion. Wants and fashion changes the demand for some commodities gain while other lessening.

• Price of substitutes

Demand for one commodity not only depends upon its monetary value but is also influenced by the Mary Leontyne Price of substitute goods price and demand are positively related.

• Prices of Complementary Goods

Like automobile and petrol, the price and quantity requirement are inversely proportional. For example, if a price of car gains the need for petrol will decrease.

• Size of Population

Larger the size of universe greater is the demand for trade good and vice versa. With an increase in the population the demand for various good increases and vice versa.

• Climatic Conditions

Climatic variations influence the demand for some good for example coolers and refrigerator etc. are demanded during summer and woolen demanded during winter. Changes in climatic conditions have an impact on demand for trade good and services

• Customs and Conventions

Demand for some good is influenced by customs and custom for example demand for new article of clothing during festival time of year, demand for gold during summer etc

• Advertisement

Demand for commodities will be influenced by Advertisement run and sales packaging strategies. Attractive advertisement mass will be induced to steal certain commodities.

• Social Environment

It influences Demand for certain commodities, for example, people bread and butter in posh localities create demand for a railway car.

• Government Policy

If the government want to encourage the consumption of certain commodities it can offer revenue enhancement conceding & subsidies and encourage the people to buy them or increase the tax to reduce them.

Elasticity of Demand

The law of demand explains the direction in which the demand changes for a given change in price. Elasticity of demand is classified into 5 different types

1. Perfectly elastic demand
2. Perfectly inelastic demand
3. Relatively elastic demand
4. Relatively inelastic demand
5. Unitary elastic demand

1. Perfectly elastic demand – A small alteration in the Price leading to an infinite change in quantity demanded.
2. Perfectly inelastic demand – Irrespective of the modification within the value the demand stay unchanged.
3. Relatively elastic demand – Proportionate modification in quantity demanded is greater than the proportionate change in toll.
4. Relatively inelastic demand – Proportionate variety in quantity demanded is less than the proportionate change in price.
5. Unitary elasticity of demand – Proportionate modification in quantity demanded equals to proportionate variety in price.

Price elasticity of demand can be measured by the following methods:

• Proportionate or Arc Method
• Total Outlay or Expenditure Method.

It is used when price and need data is available. Sometimes one may have information about the price and the spending incurred on a commodity rather than price and demand. In such fount outlay method is used.

• Diagrammatic or Point Method.

The arc method is used to measure elasticity of need between two spots in time of a need curvature. One should bear in idea that a particular full point of a need curve consists of a group of Leontyne Price and a group of quantity need ed. The elasticity of demand at any point of a demand curve can be measure by diagrammatic method.

Elasticity of Supply

The legal philosophy of supplying indicates the direction of modification —if the Price goes up, supply will gain. But how much supply will advance in answer to an increase in price cannot be known from the practice of law of supply. To quantify such change, we require the concept of elasticity of supply that measures the extent of quantity supplied in response to a change in price.

Elasticity of supply is classified into 5 different types:

1. Elastic supply
2. Inelastic supply
3. Unit elasticity of supply
4. Perfectly elastic supply
5. Perfectly inelastic suppl

• Elastic supply

Supply is said to be elastic when a given percentage alteration in price leads to a larger change in quantity supplying.

• Inelastic supply

Supply is said to be inelastic when a given percentage alteration in Leontyne Price causes a smaller change in measure supplied.

• Unit elasticity of supply

If monetary value and quantity supplied change by the same magnitude, then we have a unit of measurement snap of supply.

• Perfectly elastic supply

When there is an infinite supplying at a term and the supply becomes zero with a rebuff fall in price, then the supply of such a commodity is said to be perfectly rubber band.

• Perfectly inelastic supply

When the supply does not modification with a modification in cost, then supply for such a good is said to be perfectly inelastic.