Demand and Supply analysis 2.2The demand for any commodity is the desire for that commodity backed by ability to pay as well aswillingness to pay for it, and is always defined with reference to a particular time and price on which itdepends.So, the demand for a good or service is defined to be the relationship that exists between the price of thegood and the quantity demanded in a given time period, ceteris paribus. One way of representing demandis through a demand table/schedule such as the one appearing belowTable 1(Demand Schedule)Price(per unit)Quantity demanded(per week)A demand schedule shows how an items quantity demanded would vary with its price, other things being equal. In other words, a demand schedule is a list of the quantities of a goods or service the consumer(s) will buy at each of a series of prices.2 1003 854 555 35Thedemandfor thegoodistheentirerelationshipthat issummari!edbythis table. This demandrelationship may also be represented by a demand curve when the numerical or tabular form is expressedgraphically "as illustrated below#.The data from demand schedule can be plotted ona graph and it contracts a demand curve. In this case, rice (per unit) is shown on the vertical (or !"!) a#is, and the quantity demanded per unit of time is shown on the hori$ontal (or !%!)a#is. In the diagram, we can see this relationship. If theprice of a good is t&.' per &ilogram, consumers will buy (' &ilogram of that per wee&. If the price of that good falls to t&.) per &ilogram, '' &ilograms of that will be bought per wee&. Thedemandfunctionisalgebraicexpressionoftherelationshipbetweenpriceofaproductandthequantitydemandedfor, inrelationtothespecificperiodof time. Thesimplest formofthedemandfunction is as Qd = f(p) , here. $Qd% stands for quantity demanded and $p% stands for price.Thisrelationship, betweenpriceofaproduct andquantitydemandedoftheproduct underacertaincondition, can be expressed in numerical form as demand table/schedule, in graphical form as demandcurve or in algebraic formas demand function. These are the different expression of the samerelationship. The demand table, curve or function may either shows an individual demand or an marketdemand. There is no single concept of demand. &urthermore, the determinants of demand as well as their relativeimportance vary with the category of good and level of aggregation. Thus, it is necessary to spell outsome important ways of categori!ing demand. They are"a# 'emand for consumers% goods and producers% goods,"b# 'emand for perishable and durable goods,"c# 'erived and autonomous demands,"d# &irm and industry demands.(Demand Curve01234560 50 100 150Quantity DemandedPrice of the GoodsDD`Figure: 01Demand and Supply analysis 2.2!" #$ D%&!'D&rom the above discussion it is clear that an inverse relationship exists between the price and the quantitydemandedwhenotherfactorsareheldconstant.Thisinverserelationshipbetweenpriceandquantitydemanded is so common that economists have called it the(aw of demand, the law of demand states theinverserelationshipbetweenpriceandquantitydemanded.Thelawsays$Otherthingsremainingthesame, asthepriceof acommodityfalls, demandedquantityrisesandasthepricerises, demandedquantity falls. %)*%P+,#'- +# +.% !" #$ D%&!'D/10 )hen a serious shortage is feared, people get panicky and by more even though the price is rising. 2. )hen the good in question is a luxury item. *n case the use of a commodity confers distinction, thewealthypeople will buymore whenthe price rises, tobe includedamong the fewdistinguishedpersonages. +onversely, people tend to cut their purchases, if they believe such commodity tend to beinferior or similar but more expansive/prestigious product /brand is up coming in the market.30 Sometimes people buy more at a higher price in sheer ignorance.40 *f the price of necessity of life goes up, the consumer has to read,ust his whole expenditure. -e maycut down his expenses on other food articles and in order to make up, more may have to be spent on thisparticular good. Thus, more of this commodity will be purchased in spite of its high price.5. )hen the good whose demand is being studied goes out of fashion. )ith the popularity of .+' playerin/angladesh,the demand for .+0may verywell fall evenif .+0 hasbecomecheaper. Similarly,during off1seasons, goods are sold at reduced prices and yet demand is low.D%+%1&,'!'+- #$ D%&!'D2 +onsumers% demandforacommodityorservicedependson several factors, themostimportantofwhich are the following(. 3rice of the commodity or service, 4. +onsumers% income,5. 3rices of related goods or services,6. +onsumer tastes and preferences,*n addition to these factors, the total demand for a commodity or service also depends upon7. 3opulation and its distribution.8. +onsumers% expectations "in case of durable goods#.9. )eather-#P% #$ ! D%&!'D *213%/The'emandcurveusuallyslopes downwards: this is inaccordancewiththe (awof dimini45in6mar6ina( uti(ity. )hen the price a commodity falls, people ability and willingness to buy thatcommodity increases and new buyers enter the market and the old buyers will probably buy more, evensome peopleinpreferencetoother commoditymaybuythecommodity. Sobasedonthelawofdiminishing marginal utility the demand curve must slopes downwards, for only then the phenomenon ofincreasing demand with falling price can be represented by the curve.4Demand and Supply analysis 2.2;ore precisely, we can consider the following reasons to explain the downward slope of the demandcurve *f price falls, a consumer can afford to buy more. -e is able and willing to buy more because thething being cheaper, his real income increases. *t is called income effect. )henthecommoditybecomecheaper, it tendstobesubstitutedwhollyor partlyfor othercommodity. *t is called 4u74titution effect.Theincomeandsubstitutioneffect combinetoincreasetheabilityandwillingnessof theconsumers to buy more of the commodity whose price fallen. 2 commoditytendstobeput moreusesand(e44ur6entu4e4whenit becomecheaper.&orexample if water is dear, we shall use it for drinking only: but when it becomes cheaper, we shalluse it for washing and other less urgent uses.

-2PP8 !'D %Q2,,91,2& !'!8-,--upp(ycan be meant as the amount offered for sale at a given price. )e can also define -upp(yas aschedule of amount of goods that would be offered for sale at all possible price at any one instant of time"or, during any period of time#, in which other conditions remain the same.Supply is the relationship that exists between the price of a good and the quantity supplied in a giventime period, ceteris paribus. The supply relationship may be represented by a supply schedule or supplycurve or supply function(Supply Schedule)Price(per unit)Quantity 4upp(ied(per week)A supply schedule shows how an items quantity supplied would vary with its price, other things being equal. In other words, a supply schedule is a list of thequantities of a goods or service the supplier(s) will sell at each of a series of prices.2 153 354 :05 ;0The supply of a good is the relationship that is summari!ed by this table. This supply relationship mayalso be represented by a supply curve when the numerical or tabular form is expressed graphically "asillustrated below#.The data from supply schedule can be plotted on a graph and it contracts a supply curve. In this case, rice (per unit) is shown on the vertical (or !"!) a#is, and the quantity supplied per unit of time is shown on the hori$ontal (or !%!) a#is.In the diagram, we can see this relationship. If the price of a good is t&.( per &ilogram, supplier(s) will sell (' &ilogram of that per wee&. If the price of that good rise to t&.) per &ilogram, *+ &ilogramsof that will be ready to sell per wee&. 5Figure: 01Supply Curve 01234560 20 40 60 80 100Quantity SupplyPriceSSDemand and Supply analysis 2.2The-upp(yfunctionisalgebraicexpressionoftherelationshipbetweenpriceofaproduct andthesupplied quantity, in relation to the specific period of time. The simplest form of the supply function is asQ- = f(p) , here. $Q-% stands for supplied quantity and $p% stands for price.2like demand, this relationship, between price of a product and supplied quantity of the product under acertaincondition, canbeexpressedassupplytable/scheduleinnumerical form, assupplycurveingraphical form or as supply function in algebraic form. These are the different expression of the samerelationship.2ndtherearetwotypesofsupplyschedule*ndividual%sSupplySchedulesandSupplyschedule of the market.!" #$ -2PP82 positive relationship exists between the price and the supplied quantity when other factors are heldconstant. This positive relationship between price and supplied quantity is so generally called the (aw of4upp(y. The law says $Other things remaining the same, as the price of a commodity rises its supply isextended%.The quantity offered for sale varies directly with price, i.e. the higher the price the larger isthe supply, and vise versa.%)*%P+,#'- +# +.% !" #$ -2PP8/10*ncasesofrarecontributionor uniqueitemslikeantiques, paintings, historical ,ewelry, etc. thequantity of supply remain fixed even if the price climbs high to higher. 2. The supply of labourfollows the law of supply up to a certain level, but after that level, the supplydecreases as the wage "price of labour# increases. *t is mainlybecause of prevalence of strongersubstitution effect that offsets income effect at a certain wage rate.30The price of agricultural productsdoes not always follow the law of supply for various reasons likeeffect of seasonality, longer production period, type of soil and so on.4. 2n exception to the law of supply also can be leaded by sellers% expectation for more price hike with ina short period of time. D%+%1&,'!'+- #$ -2PP8The supply of a commodity or service depends on several factors, the most important of which are thefollowing(. 3rice of the commodity or service, 4. +osts of the various factors of production, 5. *mproved techniques of production, 6. *mprovement in the means of transport and communication,7. - !'D P1,*% $##1-2pricecei(in6is a legallymandatedmaximumprice. Thepurpose of a price ceiling is to keep the price of a good belowthe market equilibriumprice. 0ent controls and regulatedgasoline prices are examples of price ceilings. 2s the diagrambelow illustrates, an effective price ceiling results in a shortageof a commodity since quantity demanded exceeds quantity8Demand and Supply analysis 2.2supplied when the price of a good is kept below the equilibrium price. This explains why rent controlsand regulated gasoline prices have resulted in shortages. 2 price f(oor is a legally mandated minimum price. The purpose of a price floor is to keep the price of agood above the market equilibrium price. 2gricultural pricesupports andminimumwagelaws areexample of priceceilings. 2s the diagram below illustrates, an effective pricefloor results inasurplus of acommoditysincequantitysuppliedexceedsquantitydemandedwhenthepriceof agood is kept above the equilibrium price. ;'. T2/*A0 02-;2