Demand and supply

 

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1. Demand:

Definition: Demand refers to the quantity of a good or service that consumers are willing and able to purchase at various prices during a given period of time.

Key Components of Demand:

Desire: The consumer must want the good.

Ability to pay: The consumer must have the financial means.

Willingness to pay: The consumer must be ready to spend the money.

Law of Demand:

> When the price of a good rises, the quantity demanded falls, and when the price falls, the quantity demanded rises — ceteris paribus (all other things being equal).

Demand Curve:

Downward sloping from left to right.

Shows inverse relationship between price and quantity demanded.

Factors Affecting Demand:

1. Price of the good (inverse relation).

2. Income of consumers (normal vs. inferior goods).

3. Prices of related goods:

Substitutes (e.g., tea vs. coffee).

Complements (e.g., car and petrol).

4. Tastes and preferences.

5. Expectations of future prices.

6. Population size and demographics.

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2. Supply:

Definition: Supply refers to the quantity of a good or service that producers are willing and able to offer for sale at different prices over a given time period.

Law of Supply:

> When the price of a good rises, the quantity supplied increases, and when the price falls, the quantity supplied decreases — ceteris paribus.

Supply Curve:

Upward sloping from left to right.

Shows direct relationship between price and quantity supplied.

Factors Affecting Supply:

1. Price of the good (direct relation).

2. Cost of production (labor, raw materials, etc.).

3. Technology advancements.

4. Taxes and subsidies.

5. Prices of other goods (competitive production).

6. Expectations of future prices.

7. Natural conditions (climate, disasters, etc.).

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3. Market Equilibrium:

The point where demand equals supply.

Equilibrium price (market-clearing price): No surplus or shortage.

If price > equilibrium, surplus occurs.

If price < equilibrium, shortage occurs.

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Graphical Representation:

Demand curve: slopes downward.

Supply curve: slopes upward.

The intersection of these curves shows equilibrium.

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Conclusion:

Demand and supply are the backbone of any market system. They determine the price and quantity of goods and services exchanged in the market. Understanding their dynamics helps in analyzing consumer behavior, pricing strategies, and overall market performance.

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Let me know if you'd like a PDF version, diagram, or examples to explain with real-life goods (like smartphones or petrol).