1. Economic Theory
Market Demand
and Supply
Prepared By:- Abuzar Ansari
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2. Contents
• Market
• Demand
• Demand Schedule and Demand Curve
• Relationship between quantity demanded and price of a good
• Assumptions and Limitations of the Law of Demand
• Determinants of Demand
• Reasons for Downward Sloping of the Demand Curve
• Supply
• The Difference Between Supply and Stock
• Supply Schedule and Supply Curve
• Assumptions of the Law
• Determinants of Supply
• Relationship between quantity supplied and price of a good
• Equilibrium – Putting Demand and Supply Together
• Excess Supply or Surplus
• Excess Demand or Shortage
• References
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3. MARKET
A market is the arrangement of buyers and sellers where
exchange of goods and services takes place.
TYPES OF MARKETS
Physical Markets: E.g.- Shopping centre, malls, shops
Non-physical Markets: E.g.-Online markets etc.
Ad-hoc Market: E.g.-Auction markets
Markets of intermediate goods used in production of other goods. E.g. Sugar
Stock Markets: For share trading purposes.
Illegal Markets: For betting purposes etc.
Labour Market : A labour market is the place where workers and employers interact with each
other.
International currency & commodity market: The market in which participants from around
the world are able to buy, sell, exchange and speculate on different currencies.
E.g. Banks, industries etc.
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4. Demand
• The willingness and power to purchase a particular quantity of good at a
particular price and at a particular time.
LAW OF DEMAND: “ As the price falls, the quantity demanded rises, and as
price rises, the quantity demanded falls.”
Negative relationship between price and quantity demanded  Law of Demand
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5. Demand Schedule and
Demand Curve
• Demand Schedule:-A list showing the quantity of a good that
consumers would choose to purchase at different prices, with
all other variables held constant
• Demand Curve: -Graphically shows the relationship between
the price of a good and the quantity demanded , holding
constant all other variables that influence demand
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6. Relationship between quantity
demanded and price of a good
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7. Assumptions and Limitations
of the Law of Demand
• Assumptions
Income constant
no change in tastes, fashion and
habits
price of related goods remains
unchanged
no future expectations
• Limitations
Very high-priced goods
Very low-priced goods
Ignorance of the
consumer
necessities
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8. Determinants of Demand
• Price of the goods
• Price of related goods [substitutes and complements]
• The size of income
• Taste and fashion
• Expectation
• Number of Buyers
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9. Reasons for Downward
Sloping of the Demand Curve
Income effect: It is the effect of change in price of the good when
the consumer’s income changes. The relationship between income
and the quantity demanded is a positive one, as income increases,
so does the quantity of goods and services demanded.
Substitution Effect: As prices rise (or incomes decrease)
consumers will replace more expensive items with less costly
alternatives or substitutes.
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10. Supply
• The amount of goods that the sellers make available in the market at a
particular price at a particular time.
LAW OF SUPPLY: Keeping other factors constant, as price of any good increases
its supply also increases and vice versa.
Positive relationship between price and quantity supplied.
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11. The Difference Between
Supply and Stock
Stock is the quantity of output which a
seller has with him and has not yet
brought for sale.
Supply is the quantity of output brought
from existing stock for sale at a certain
price in the market.
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12. Supply Schedule and
Supply Curve
• Supply Schedule:
- A list showing the amount of a product that
producers would produce and sell at a series of
varying prices, during a certain time, with all the
other factors held constant
• Supply Curve:
-The graphical representation of the relation
between the quantity supplied of a good that
producers are willing and able to sell and the
price of the good
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13. Assumptions of the Law of
supply
• Constant cost of production
• Constant price of input goods
• Constant technology
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14. Determinants of Supply
• Price of the good
• Resource Prices
• Technology
• Taxes and subsidies
• Price of Other Goods
• Number of Sellers
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15. Relationship between quantity
supplied and price of a good
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16. Equilibrium – Putting Demand
and Supply Together
• When a market is in equilibrium
Both price of good and quantity, bought and sold have settled into a
state of rest
• The equilibrium price and equilibrium quantity can be found on the
vertical and horizontal axes, respectively
At point where supply and demand curves cross 16

17. Excess Supply or Surplus
• Excess Supply
At a given price, the excess of quantity
supplied over quantity demanded
• Price of the good will fall as sellers
compete with each other to sell more of
the good than buyers want
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18. Excess Demand or Shortage
• Excess demand
At a given price, the excess of quantity
demanded over quantity supplied
• Price of the good will rise as buyers
compete with each other to get more of
the good than is available
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19. References
• Ward, F.A.(2006). Environment and natural
Resources Economics. Pearson and Prentice
Hall, Japan.
• Introduction to Economics and Finance - (Study
Text, C.A. Paper B3)
• Sachdev, C.B. Introductory Microeconomics: A
Text Book for Class 12th, 2010, Ekta Publishing
House.
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