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Concept of Market
A market is a mechanism by which buyers and sellers interact to determine the price and quantity of a good or service Demand side of the market for a product refers to all its consumers and the price they are willing to pay for buying a certain quantity of a product during a period of time.
What is Demand???
Demand is the desire or want backed up by money Always related to price and time
higher the price of a commodity, smaller is the quantity demanded and lower the price, larger the quantity demanded Dx = f (Px)
60
50
6
10
4
3 2 1
1
2 3 5
1
3 5 9
3
5 7 10
5
10 15 24
Demand equation
D= a bP Where a is constant parameter signifying initial demand irrespective of price b represents slope of demand curve functional relationship between price and demand, having minus sign denotes negative function
Contd
Giffens goods: It is a special type of inferior goods where the fall in the price results into the decrease In the quantity demanded. This happens because of peoples preference for superior commodity Consumers Psychological bias: Many a times consumer judges the quality of a good from its price. Such consumers may purchase high price goods because of the feeling of possessing a better quality. The exceptional demand curve shows a positive relation between the price and the quantity demanded.
Nature of Demand
Demand for Consumers goods & Producer's goods Autonomous & Derived Demand Demand for Durables and NonDurables (Perishables) Joint Demand and Composite Demand
Supply Analysis
Supply during a given period of time means the quantities of goods which are offered for sale at particular prices Supply is what seller is able and willing to offer for sale Supply and Stock are related but distinct terms-Supply comes out of Stock Stock determines potential supply Stock is outcome of production
Determinants of Supply
Cost of factors of production State of Technology Factors outside Economic Sphere such as weather conditions, natural calamities, etc Tax and Subsidy
Law of Supply
Other things remaining same , supply of a commodity rises with a rise in price and falls with a fall in price
Supply schedule
Assumptions :
Cost of production is unchanged Technology is constant Govt policies are unchanged No change in Transport costs No speculation Prices of other goods constant
Increase and Decrease in Supply: refer to change in supply due to determinants other than price
Shifts in Supply Curve
Excess Demand
D&S
P1 Po
E0
D
Q1 Q0
Monthly Rent
$1000 $600
Shortage
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