Demand, Supply, and
Market Equilibrium
BY Harsh Toppo 245101353
Satish Kumar 245101283
Tarun Kumar 245101309
Demand
Demand refers to the quantity of a good or service that
consumers are willing and able to purchase at different prices
during a given period of time. It is typically expressed in a
demand curve which slopes downward from left to right.
Key points about Demand:
1. As the price of a good decreases, the quantity demanded
increases, and vice versa.
2. Demand is influenced by factors such as consumer
preferences, income levels, and the prices of related goods.
Law of Demand
The Law of Demand states that, all else being equal, as the
price of a good or service falls, the quantity demanded
increases, and as the price rises, the quantity demanded
decreases.
This negative relationship between price and quantity
demanded results in a downward-sloping demand curve.
Supply
Supply refers to the quantity of a good or service that
producers are willing and able to offer for sale at different
prices during a given period of time.
Key points about Supply:
1. As the price of a good increases, the quantity supplied
increases, and vice versa.
2. Supply is influenced by factors such as production costs,
technology, and the prices of related goods.
Law of Supply
The Law of Supply states that, all else being equal, as the price
of a good or service increases, the quantity supplied increases,
and as the price decreases, the quantity supplied decreases.
This positive relationship between price and quantity supplied
results in an upward-sloping supply curve.
Determinants of Demand
The demand for a good or service can be affected by several
factors, including:
1. Consumer income: Higher income generally increases
demand.
2. Consumer tastes and preferences: Changes in consumer
tastes can shift demand.
3. Prices of related goods: Substitutes and complements affect
demand.
4. Expectations about future prices: If consumers expect prices
to rise, current demand may increase.
Determinants of Supply
The supply of a good or service can be influenced by factors
such as:
1. Production costs: Lower production costs increase supply.
2. Technological advancements: Improved technology can
increase supply.
3. Price expectations: If producers expect higher prices in the
future, they may reduce current supply.
4. Number of sellers: More producers increase supply.
Market Equilibrium
Market equilibrium occurs when the quantity demanded equals
the quantity supplied at a particular price level. This price is
known as the equilibrium price, and the corresponding
quantity is the equilibrium quantity.
At this point, there is neither a shortage nor a surplus of
goods.
How Demand and Supply Interact to
Determine Equilibrium
The interaction between demand and supply determines the
equilibrium price and quantity in the market.
1. If the price is above the equilibrium price, there will be a
surplus, and suppliers will lower prices to clear the excess.
2. If the price is below the equilibrium price, there will be a
shortage, and suppliers will raise prices to balance supply and
demand.
Shifting Demand and Supply Curves
The demand and supply curves can shift due to changes in the
determinants of demand and supply.
Shifts in the demand curve can be caused by changes in
income, preferences, or the prices of related goods.
Shifts in the supply curve can result from changes in
production costs, technology, or the number of producers in
the market.
When either curve shifts, the equilibrium price and quantity
will also change.
How Production Cost Affect Supply
Increase expenses , reduces profitability , and lower quantity
supplied at all prices. The Supply curve shifts Left.
ONION PRICE SURGE IN
2019
SUPPLY DYNAMICS:
1. Adverse Weather: Heavy rain in Maharashtra and Karnataka damaged
crops, reducing supply by 30-40 %.
2. Storage Loses: Excessive rainfall caused onion stocks to spoil,
worsening the supply crunch.
3. Delayed Harvest: Unseasonal rains delayed the kharif crop, creating
shortages during the festive season.
DEMAND DYNAMICS:
4. High Seasonal Demand : Festivals and weddings increased onion
consumption.
5. Inelastic Demand: onions, a staple in indian cuisine, had few
substitutes, keeping demand high despite rising prices.
6. Speculative Hoarding: Traders hoarded onions, anticipating further
.
IMPAPCT ON PRICES :
Retail prices surged from 20-30rs / kg in August to 150rs / kg in
December.
