LAW OF DEMAND

This law states that there exists an inverse relationship between

price and the quantity demanded of a good, keeping other things
constant (Ceteris Paribus). In other words, this law says that the
quantity demanded of a good will increase if the price decreases
and the quantity demanded of a good will decrease if the price
increases, ceteris paribus (Keeping other things constant).
Determinants of demand or
the factors affecting the
demand

Price of the commodity

This factor says that, as the price of a commodity increase, the
quantity demanded falls, keeping other things constant. This
happens due to a decrease in the satisfaction level of the
consumer. 

When the price of the commodity increases from 4 to 6, the quantity

demanded falls from 3 to 2. As you can see, the consumer is
moving along the demand curve from point A to point B. This is
called an upward movement along the demand curve.
The reverse will happen, if the consumer starting position was point
B and the price falls from 6 to 4, the quantity demanded rises from 2
to 3. The movement from point B to point A is called downward
movement along the demand curve.
The income of the consumer
The demand for the commodity is also affected by the income of the
consumer. But the effect of change in income on demand depends
on the nature of the commodity. Two types of goods are related to
the income of the consumer;

Inferior Good (Poor quality good)

These goods are of poor quality and are inversely or negatively
related to the income of the consumer. 
Normal good (Better quality good)
These goods are of better quality and they are directly related to the
income of the consumer. When the income of the consumer
increases, the demand for normal goods increases keeping other
things constant.

Taste and preferences

The taste and preferences of the consumer directly influence the
demand for a commodity. They include a change in fashion trends,
habits, etc. Take an example, if a commodity is in fashion or it is
preferred by a consumer, then the demand for such a commodity
will increase or vice versa.

Future Expectations
If the price of a certain commodity is expected to increase shortly,
then people will buy more of that good, as compared to what they
normally buy. 

Price of the related goods

The demand for the commodity is also affected by the change in the
price of the related goods. Related goods are of two types:
Substitute Goods
These are those goods which can be used in place of each other for
consumption or those goods which can replace each other. So, if
the price of one good increases then demands of there substitute
good increases, that is, why substitute goods have a positive cross
elasticity of demand.

Complimentary goods
These are those goods that are consumed together to obtain
satisfaction. For example, Car and petrol are used together, the pen
and ink are used together. These goods have negative cross
elasticity of demand, this means that a good demand will increase
when the price of the other good falls and vice versa.

Definition of Movement in Demand Curve

Movement along the demand curve depicts the change in both the
factors i.e. the price and quantity demanded, from one point to another.
Other things remain unchanged when there is a change in the quantity
demanded due to the change in the price of the product or service,
results in the movement of the demand curve. The movement along the
curve can be in any of the two directions:

 Upward Movement: Indicates contraction of demand, in essence,

a fall in demand is observed due to price rise.
  Downward Movement: It shows expansion in demand, i.e.
demand for the product or service goes up because of the fall in
prices.

Hence, more quantity of a good is demanded at low prices, while when

the prices are high, the demand tends to decrease.

Definition of Shift in Demand Curve

A shift in the demand curve displays changes in demand at each

possible price, owing to change in one or more non-price determinants
such as the price of related goods, income, taste & preferences and
expectations of the consumer. Whenever there is a shift in the demand
curve, there is a shift in the equilibrium point also. The demand curve
shifts in any of the two sides:

 Rightward Shift: It represents an increase in demand, due to the

favourable change in non-price variables, at the same price.
 Leftward Shift: This is an indicator of a decrease in demand when
the price remains constant but owing to unfavourable changes in
determinants other than price.
Market demand refers to the sum of individual demand for a product
available in the market.

Consider a product available in the market that is facing more demand from
consumers. These consumers have the ability to purchase and so, the price of that
product instantly rises.
 In simple terms, it is the will and the ability of customers to buy a product at a given
price.

1. What is market demand?

Market demand is a measure of a consumer's desire and ability to buy a product.

2. How do you determine market demand?

3.

You can determine market demand by conducting a study or research to find out
how many people would love to purchase your product
.
4. What is market demand function?

The market demand function is a graph that shows how much of a product or service
will be purchased at different prices.

5. What are the 4 elements of market demand?

The four elements of market demand are:

1. Quantity demanded
2. Price of related goods
3. Taste and preferences of consumers
4. Consumer expectations about future price changes, income

5. How do you calculate market demand?

Market demand is calculated based on the number of people who could buy and how
much they are willing and able to spend. If 30,000 people can afford it and all 100%
are willing to buy your product, the market demand is 30,000.
The Law of supply
This law states that keeping other things or other factors constant,
there exists a direct relationship between the price of a commodity
and its quantity supplied. In short, if the price increases, the quantity
supplied will be increased, and if the price decreases, the quantity
supplied will be decreased.

Assumptions to the law of

supply
1. There is no change in the price of factors of production.

2. Technology remains the same.

3. The price of related goods remain the same.

4. The tax structure should remain the same.

5. Input prices of the price of factors of production should remain

the same.
1. Price of the commodity
This is the exact law of supply, this means, there is a direct
relationship between the own price of the commodity and its
quantity supplied. The higher the price, the higher will be the
quantity supplied. Similarly, the lesser the price, the lesser will be
the quantity supplied.

3. Technology
With the improvement in technology, the producer’s cost of
production will ultimately fall for producing more commodities and
the supply will increase and the vice versa
4. Input Price
Input price or raw material price or the price of factors of production
are the same. If the price of input increases, the cost of production
will increases. So, the supply will decrease, and vice versa.

5. Tax structure
Taxes are imposed by the government on the sale and purchase of
commodities. This type of tax is an indirect tax as it is levied on
commodities and not on the income of the producer or of the
consumer.

With the increase in taxes on the sale of goods, the seller will
supply less of that commodity because he needs to bear the cost of
taxation.

2. Price of related goods

In this, we will study 2 types of goods:

a. Substitute Goods
The price of a particular commodity is indirectly related to the price
of its substitute goods. I hope you remember substitute goods,
which can replace each other like wheat and rice.

For example, the supply of wheat will fall when the price of rice
increases. Because, if the price of rice is increased, then the
producer will be producing more rice, and earn more revenue from
the higher price. This will also cause a lower supply of wheat
because its price is unchanged. Whereas, rice is more lucrative for
the producer to sell.

b. Complementary Goods
The price of a particular commodity is directly related to the price of
its complementary goods. Complementary goods are those which
are consumed together like cars and petrol.

For example, with the increase in the price of petrol, the supply of
cars will increase because producers are aware that petrol is used
in cars. So increasing the supply of cars will ultimately benefit the
producer. The supply curve for the car will shift to the right.
What is market supply?
Market supply is the total quantity of goods and services that producers are willing to
supply at a particular price point or range for a certain period of time.

It's the total sum of the supply amounts for all individual producers.

What factors can affect market supply?

 Number of producers: A higher number of individual producers in a
market means that there are more data points to sum to find the
market supply, even though it also means that there is a higher level
of competition. Typically, the more producers, the greater the total
quantity of market supply is.
 Advances in technology: Technological advances with regard to
software, equipment and other production tools can enable producers
to automate tasks, support employee efforts and increase
productivity and efficiency in manufacturing. This leads to an
increase in the production of output and raises market supply.
 Cost of inputs: The cost of inputs refers to the expenses involving
purchasing raw materials, using energy, paying labor wages and
acquiring other factors of production. Low cost of inputs allows
producers to develop a greater number of goods, while high cost of
inputs may prevent a producer from manufacturing and lead to a
decrease in individual supply.
 Level of competition: In the context of commerce and business,
competition refers to the process in which various businesses
compete for market shares, paying customers and profits. Higher
levels of competition may increase production levels as companies
seek to fill gaps in the market and meet demand levels.
 Government subsidies: Government subsidies are monetary
benefits that the government provides to businesses to remove
burdens, support public interests and promote healthy economic
activity. These can make it easier for businesses to purchase
supplies and conduct production, thus increasing output and making
market supply levels higher.
 Business taxes: Businesses fulfill the requirement of paying taxes to
the government in order to pay the salaries of government workers,
support public resources and aid in the building of public
infrastructure. High business taxes increase costs for businesses,
reduce profits and can lower market supply for these reasons.
 Transportation costs: Transportation costs involving resources like
oil, fuel and infrastructure can strain the budgets of businesses and
disincentive production. This is because transportation is a critical
component of acquiring manufacturing supplies, distributing goods to
customers and supporting logistics, in general.
 Government regulations: Certain regulations on business activities
that involve areas like waste, work safety or product health can affect
a business leader's ability to maintain production and adhere to a
pre-determined budget. This may stall production processes
temporarily and lead to lower market supply quantities.
 Natural disasters: Natural disasters like tornadoes, severe storms,
hurricanes, floods or wildfires can shock production systems and
change market priorities temporarily. Producers may increase the
supply of essential goods like food and water or decrease the
production of non-essential foods and focus on other business
activities for a period.
 Producer expectations: Producer expectations and sentiment have
a large influence over prices and both individual and market supply
levels. If producers expect prices to fall or rise, they may implement
certain measures to reduce or increase production, maximize sales
from inventory and protect the interests and revenue of their
businesses.