ECONOMICS : Demand & Supply
Definintion :- Demand and supply analysis is the study of how buyers and sellers interact with each other in order to determine the prices and quantity of commodity.
Demand:- It is the ability and willingness of a consumer or buyer to purchase anything at a given price.
Supply : – It is the willingness of seller to offer a certain amount of goods or services at the specified market price
Demand Curve:– (Law of demand) –
There is inverse relationship between price and the quantity demanded.
- If price of a commodity increases, then its demand will decrease & if price of a commodity decreases, its demand will increase Demand curve graph slopes down ward from left to Right.
Note – If demand will increase, there will be right shift in the above graph.
If demand will decrease, there will be left shift in the above graph.
Supply Curve:- (Law of supply) –
- Supply curve graph slope upwards from left to Right.
- Higher the price of a commodity, higher is the supply provided.
- Law of supply is just opposite to the law of demand
- “Supply curve of seller for Petrol”
- The increase in price has allowed/forced the seller to supply greater amount of petrol per month in order to increase his revenue.
Note – Say’s Law – (By J. B. Say) – “Supply creates its own demand”.
- At market equilibrium : –
DEMAND = SUPPLY
Above the point of market equilibrium, when demand of a commodity increases then its supply will also increased.
And below the point of market equilibrium, increased demand will leads to decrease in supply.
Equilibrium price = Quantity Demanded = Quantity supplied
Previous year questions asked from above article (demand curve)
Q.1 A Horizontal demand curve is :-
(a) Relatively elastic
(b) Relatively inelastic
(c) Perfectly elastic
(d) Perfectly inelastic
Ans. (c) Exp. Horizontal demand curve is perfectly elastic in nature means if price of any goods falls from the market price, quantity demanded falls to zero.
Q.2 Elasticity of demanded measures the responsiveness of the quantity demanded of a goods to a :-
(a) Change in the price of the goods
(b) Change in the price of joint products
(c) Change in the price of complements
(d) Change in the price of substitutes.
Ans. (a) Exp. – It measures the responsiveness of change in quantity demanded due to change in Price of goods
Q.3 Perfectly inelastic demand is equal to :-
(b) Greater than one
Ans. (d) Exp. If price elasticity of demand = 0, demand does not change when price changes.
Q.4 A demand curve will not Shift: –
(a) When only income changes
(b) When there is a change in advertisement expenditure.
(c) When only price of the commodity changes.
(d) When only prices of substitute products change
Ans. (d) Exp. The change in advertisement expenditure do not change directly to the demand curve.
Previous year Question asked from supply curve : –
Q.1 Who said “supply creates its own demand”?
(a) Ricardo (b) Adam smith (c) Marshal (c) J. B. Say
Ans. (d) Exp. Professor J. B. say has given “say’s Law” according to which supply creates its own demand.
Q.2 Effective demand depends on –
(a) Capital output ratio
(b) Supply price
(c) Output capital ratio
(d) Total expenditure
Ans.(b) Exp. Effective demand depends upon supply price.
- If product price is low, people will buy more and if price is increased, demand of product goes down.
Q.3 Name the curve which shows the quantity of products a seller wishes to sell at a given price rate –
(a) Supply Curve
(b) Demand Curve
(c) Cost Curve
(d) None of these
Exp. It shows the product offered for sale by the seller at different prices for that article.
Previous Year Question asked from Equilibrium and Elasticity
Q.1 If demand curve for petrol is D = 100000 – 16P and Supply curve is S = 50000 + 9P. Find the equilibrium Price?
(a) Rs. 10000
(b) Rs. 2000
(c) Rs. 500
(d) Rs. 4000
Ans. (b) Exp. Equilibrium Price = Quantity demanded = Supply
1000000 – 16P = 50, 000 + 9P
25P = 50, 000
P = 2000 Ans.
Q.2 Calculate a country’s GDP if for the year consumer spending is $ 5500 million, govt. spending is $ 240 million, investment by business is $ 90 million, exports are $ 45 million and imports are $ 55 million.
(a) $ 840 million
(b) $ 720 million
(c) $ 930 million
(d) $ 745 million
Ans.(a) –Exp. – GDP = Private consumption + Investment + Govt. Expenses + Foreign Expenditure (Import – Export)
= 500 + 240 + 90 + (55 – 45)
= 500 + 240 + 90 + 10
= $ 840 million Ans.