DEMAND & SUPPLY

DEMAND

 The needs of consumers are what drive demand, and demand's nature is heavily influenced by how much consumers value the product or service. We all require necessities, like basic foodstuffs, but some may be highly sought after and others may consider them worthless.

A number of factors influence the level of demand for a good or service, including:

the price of another good or service, especially if it is a substitute or complement, the price of other goods and services, and income preferences and expectations.

Traditional economic analysis examines these determinants by comparing the quantity demanded to one of these variables while assuming that all other variables remain constant (or ceteris paribus).

The relationship between price and quantity demanded is the most common way to analyze demand. The quantity demanded is inversely correlated with price, as long as other determinants of demand remain constant and people act rationally.As a result, when prices rise, so does demand, and vice versa. 

Quantity demanded is inversely correlated with price changes.Quantity demanded from OQ1 to OQ2 decreases as a result of the price increase from OP1 to OP1.

A change in price will cause the curve to move in that direction.The demand for less will fall as the price rises.With a few odd exceptions, this occurs with the majority of goods.The price of what are referred to as "Giffen goods" actually drives up demand for them.For instance, as a result of consumers' inability to afford more expensive food items, more rice will be purchased when the price of rice rises in some parts of China.

What happens if we relax our assumption that other variables, such as income and tax rates, are constant?Demand for a good or service will typically rise in response to an increase in income, which will move the curve away from its origin.Similarly, a decrease in the price of a substitute good will shift the demand curve toward the origin because consumers will find the original good less appealing.

Even though these generalizations are useful, it's important to keep in mind that economic behavior is influenced by human decisions, so we can't always accurately predict how people will behave.For instance, as consumers discover that they no longer need to rely on basic diets to survive, some very basic foodstuffs will lose popularity.  

SUPPLY

The quantity of goods and services that producers offer to the market is referred to as supply.We are able to map the relationship between price and quantity demanded, and we can also think about the relationship between price and quantity supplied.If they can get a better price, suppliers will typically be willing to produce more goods and services.As a result, the supply curve will have a left-to-right upward slope when all other influences are maintained, as shown in Figure 2. 

The quantity offered and the price are directly related.Quantity supplied from OQ1 to OQ2 rises as a result of an increase in price from OP1 to OP2.

The following factors affect supply:

price of other goods and services' relative revenues and production costs; producers' goals; and technology's expectations for the future

In most cases, a business will make the most money when its marginal cost and marginal revenue, which are the profits from selling one more unit of production, are equal.However, if a company's marginal revenue is greater than its average variable costs, it may continue to operate, contributing to the cost of covering its fixed expenses.

Using the same logic as before, a change in price will drive a change along the supply curve, but a change across the entire curve will be driven by something other than price.