Demand, Supply and Market Equilibrium

Topics: Supply and demand, Consumer theory, Demand curve Pages: 4 (1091 words) Published: November 27, 2012
Demand, Supply and Market Equilibrium
Every market has a demand side and a supply side and where these two forces are in balance it is said that the markets are at equilibrium.

The Demand Schedule:

The Demand side can be represented by law of downward sloping demand curve. When the price of commodity is raised (ad other things held constant), buyers tend to buy less of the commodity. Similarly when the price is lowered, other things being constant, quantity demanded increases.

The above figure shows quantity demanded at different prices. Here we can observe that the quantity demanded increases as the price decreases and vice versa keeping other things constant. This happens basically due to factors namely Income effect and substitution effect. Demands for any quantity is determined by three factors namely want for the commodity, will to buy the same and ability to buy the same. A whole array of factors determines how much would be the quantity would be demanded at a given price i.e. the other factors that are mentioned above: 1. Average income of the consumer

2. Size of the market
3. Prices and availability of related goods
4. Tastes and preferences of the consumer
5. Special influences

Shift in demand curve Vs Movement along Demand Curve or Change in Demand Vs Change in Quantity Demanded

A change in demand occurs when one of the elements underlying the demand curve shifts. For example if a person likes Pizzas and his income increases. So as his income increases he will demand more of pizzas even if the prices of pizzas do not change. In other words, higher income level has resulted in higher demand for pizzas i.e. there are a shift n the demand curve or change in demand. Again if the price of pizzas fall and other things viz. income of the consumer remains same. Again there would rise in quantity demanded. This increase in quantity demanded is due to decrease in price. This change represents movement along demand curve or...
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