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Part 1: 1.0Introduction:
The market price of a good is determined by both the supply and demand for it. In 1890, English economist Alfred Marshall published his work, Principles of Economics, which was one of the earlier writings on how both supply and demand interacted to determine price. On the current time, the supply-demand model becomes the concept of economics. The price of a good is determined by the point at which quantity supplied equals quantity demanded. The relationship between supply and demand has a good deal of influence on the price of goods and services.

Graph 1 The supply and demand relationship affects price in a different manner when a company has produced too much of an item. For example, if the gift company increases production to create 500 gift items, but the demand stays at 200, the supply outstrips the demand and the price will not rise. By contrast, the company may actually lower the price in an attempt to attract consumers who considered the gift item attractive, but thought the opportunity cost was too high.

1.1Demand:
The amount of a particular economic good or service that a consumer or group of consumers will want to purchase at a given price. The demand curve is usually downward sloping, since consumers will want to buy more as price decreases. Demand for a good or service is determined by many different factors other than price, such as the price of substitute goods and complementary goods. In extreme cases, demand may be completely unrelated to price, or nearly infinite at a given price. Along with supply, demand is one of the two key determinants of the market price. Quantity demand is the amount of a good that buyers are willing and able to purchase. In other word, it is the term demand signifies the ability or the willingness to buy a particular commodity at a given point of time.

1.2 The law of demand:

The law of demand states that, if all other factors remain equal, the higher the price of a good, the less people will demand that good. In other words, the higher the price, the lower the quantity demanded. The amount of a good that buyers purchase at a higher price is less because as the price of a good goes up, so does the opportunity cost of buying that good. As a result, people will naturally avoid buying a product that will force them to forgo the consumption of something else they value more. The chart below shows that the curve is a downward slope.

Graph 2 From the above graph, A, B and C are points on the demand curve. Each point on the curve reflects a direct relationship between quantities demanded (Q) and price (P). So, at point A,

the quantity demanded will be Q1 and the price will be P1, and so on. The demand relationship curve illustrates the negative relationship between price and quantity demanded. The higher the price of a good the lower the quantity demanded (A), and the lower the price, the more the good will be in demand (C).

1.3 Demand schedule:

A table or listing showing the number of units of a single type of good those purchasers would offer to buy at each of a number of varying prices during some particular time period. Demand schedules can be drawn up to reflect the behavioral propensities of a single unique individual, household, firm or it could be encountered in microeconomic analysis, composite demand schedules for the particular good may be derived by adding up all the demand schedules of the large number of individuals, households or firms that are active or potentially active as purchasers in the market under consideration. Basically, the demand schedule shows the relationship between the prince of good and the quantity demanded. For example, assuming the ice-cream seller is selling one unit for $3.00, at that particular price the demand for the ice-cream cone would be zero. On the other hand, when the price of the ice-cream cone is $0.50, the demand would increase into 10 units.

Price of iceCream cone $0.00 $0.50 $1.00 $1.5 $2.00 $2.50 $3.00

Quantity of cones demanded 12 10 8 6 4 2 0

Table 2.1

1.4 Demand Curve:

Demand curve is a graph of the relationship between a price of a good and the quantity demanded. It is a graphic representation of a demand schedule. Demand curves are used to estimate behaviors in competitive markets, and are often combined with supply curves to estimate the equilibrium price and the equilibrium quantity. From the previous example, the below graph shows the demand curve for the ice-cream cones. As the demand could be increased when the price of the ice cream fall down. On the other hand, when the price goes up, then the demand of the ice-cream will be decreased.

Graph 3. Demand curve for ice-cream cones

1.5 Demand curve shift:

The demand curve may shift to the right or left entirely based on certain conditions in the market place. Demand curve shifts occur from reasons in the marketplace not related to the price of goods on the market. Several reasons for a demand curve shift exist in a marketplace, including:

- Change in consumer preference - Price of substitute goods - Change in disposable income - Loss of purchasing power - Change in population size

Figure 4. Shift in Demand.

1.6 Quantity Demand shift:

Shifts along the demand curve are quite common in free market economies. Because prices for goods are determined by the marketplace, any change in the existing market or consumer demand may shift the quantity of goods demanded. Changes in raw materials cost, new competitors entering the market or reduced consumer demand may cause a shift along the demand curve. Quantity-demanded shifts can go either up or down based on the changes in the marketplace relating to prices and consumer demand. In figure 5, it illustrate the changing in quantity demand where e can see the changing from point A to point B.

Figure 5: Shift in Quantity Demand

2.0 Supply A fundamental economic concept that describes the total amount of a specific good or service that is available to consumers. Supply can relate to the amount available at a specific price or the amount available across a range of prices if displayed on a graph. This relates closely to the demand for a good or service at a specific price; all else being equal, the supply provided by producers will rise if the price rises because all firms look to maximize profits. Quantity supplied is the amount of a good that sellers are willing and able to sell. 2.1 Law of Supply: In economics, the law of supply is the tendency of suppliers to offer more of a good at a higher price. The relationship between price and quantity supplied is usually a positive relationship. A rise in price is associated with a rise in quantity supplied. As firms produce more output, their total costs rise proportionately faster. The ratio of the change in total costs to the change in quantity is increasing. This ratio defines the firm's marginal cost of production.

Figure 6. Law of Supply 2.2 Supply schedule: A table or listing showing the exact quantities of a single type of good or service that potential sellers would offer to sell at each of a number of varying prices during some particular time period. Supply schedules may be drawn up to reflect the behavioral propensities of a single unique individual, household, or firm or, more frequently encountered in microeconomic analysis, composite supply schedules for the particular good may be derived by adding up all the supply schedules of the large number of individuals, households or firms that are active or potentially active as sellers in the market under consideration.

Price of icecream cones $0.00 $0.50 $1.00 $1.50 $2.00 $2.50 $3.00

Quantity of cones supplied 0 cones 0 1 2 3 4 5

Table 3.1 2.3 Supply curve: A graph showing the hypothetical supply of a product or service that would be available at different price points. The supply curve usually slopes upward, since higher prices give producers an incentive to supply more in the hope of making greater revenue. However, it is the graph of the relationship between the price of a good and the quantity supplied.

Figure 7: Supply curve

2.4 Supply Curve Shift: While changes in price result in movement along the supply curve, changes in other relevant factors cause a shift in supply, that is, a shift of the supply curve to the left or right. Such a shift results in a change in quantity supplied for a given price level. If the change causes an increase in the quantity supplied at each price, the supply curve would shift to the right. There are several factors that may cause a shift in a good's supply curve: Prices of other goods: the supply of one good may decrease if the price of another good increases, causing producers to reallocate resources to produce larger quantities of the more profitable good. Number of sellers: more sellers result in more supply, shifting the supply curve to the right. Prices of relevant inputs: if the cost of resources used to produce a good increases, sellers will be less inclined to supply the same quantity at a given price, and the supply curve will shift to the left. Technology : technological advances that increase production efficiency shift the supply curve to the right.

Figure 8: Supply Shift

2.5 Market Equilibrium Situation where the supply of an item is equal to its demand. Since neither there is surplus nor shortage in the market, there is no innate tendency for the price of the item to change. Equilibrium Price: it is the price that balance the quantity supplied and quantity demanded. Graphically, it is the price where the supply curve and demand curve intersect. Equilibrium Quantity: it is the quantity supplied and the quantity demanded at the equilibrium price.

Figure 9: Equilibrium

2.6 Surplus & Shortage Surplus: the surplus happened when the price is greater than the equilibrium price; therefore the quantity supplied is more than the quantity demanded. When the surplus accrued, the sellers need to reduce the price to increase the sales in order to reach the equilibrium point. Shortage: in the shortage, the price will be less than the equilibrium price; so the quantity demanded is more than the quantity supplied into the market. Therefore, for the suppliers to reach the equilibrium point, they need to increase the price of that good.

Figure 10: Surplus & Shortage

Part 2:

2.1 Demand:
The demand for a good can increase or decrease. The demand for a good increases if people are willing and able to buy more of the good at all prices. The demand for a good decreases if people are willing and able to buy less of the good at all prices.
P P D D D1 D1

Rightward shift in demand curve (increase in demand)

Leftward shift in demand curve (decrease in demand)

2.1 Non price factors that impact the demand:

2.1.1 Income
As a person's income rises, he or she can buy more at any particular goo at a given price (for example blue jeans). But the ability to buy more blue jeans does not necessarily imply the willingness to do so. If the demand for blue jeans rises as income rises, then blue jeans are called a normal good. The demand for a normal good rises as income rises and falls as income falls. The demand for a normal good and income are directly related. Suppose a person's income increases and she buys fewer blue jeans. This time blue jeans are an inferior good. The demand for an inferior good falls as income rises and rises as income falls. The demand for an inferior good and income are inversely related Normal good: demand increases when income increases and decreases when income decreases. Inferior good: a good for which the demand decreases when income increases

2.1.2 Prices of related goods.

There are two types of goods, substitutes and complements. Two good are substitutes if they satisfy similar needs or desires. Coca-cola and Pepsi-cola are substitutes. The price of one and the demand for the other are directly related. As the price of Coca-cola rises, the demand for Pepsi-cola increases. Two goods are complements if they consumed jointly. Tennis rackets and tennis balls are complements. The price of one and the demand for the other are inversely related. As the price of tennis rackets rises, the demand for tennis balls decreases.

2.1.3 Preference
People's preferences affect the amount of a good they are willing to buy at a particular price. A change in preferences in favor of a good shifts the demand curve rightward. A change in preferences away from the good shifts the demand curve leftward.

2.4 Expectations of future price

Buyers who expect the price of a good to be higher next month may buy the good now-thus increasing the current demand for the good. Buyers who expect the price of a good to be lower next month may wait until next month to buy the good-thus decreasing the current demand for the good.

2.5 Number of buyers

The demand for a good in a particular market area is related to the number of buyers in the area. The more buyers, the higher the demand ; the fewer buyers, the lower the demand.

2.6 Advertising
An increase in a firm's effective advertising will cause an increase in demand for the product being advertised.

2.7 Expectations of future price

Buyers who expect the price of a good to be higher next month may buy the good now-thus increasing the current demand for the good. Buyers who expect the price of a good to be lower next month may wait until next month to buy the good-thus decreasing the current demand for the good.

2.8 Population
Demand also depends on the size and the age structure of the population. Other remaining the same, the larger (smaller) the population, the larger (smaller) is the demand for all goods.

2.2 Supply:

The supply decision is one of the several decisions that firms make in order to maximize profit. There are usually a number of ways to produce any given product. Firms must choose the production technique most appropriate to their products and projected level of productions. The best method of production is the one that minimizes cost, thus maximizing profit.