Demand, Supply & Markets

NODE 01

Market

• System where buyers and sellers interact.
• Exchanges goods and services.
• Does not require a physical location.
• E.g., local market, stock market, online.

NODE 02

Demand

+

• Quantity consumers are willing and able to buy.
• At different prices during a given period.
• Desire alone ≠ demand.
• Requires willingness + purchasing ability.

NODE 03

Quantity Demanded

• Specific amount willing/able to purchase.
• At ONE particular price.
• Demand = full relationship.
• Quantity demanded = single point.

NODE 04

Law of Demand

P ↑Q ↓

vs

P ↓Q ↑

• Other things remaining constant.
• Price and Quantity have an inverse relationship.
• Driven by Substitution & Income effects.
• Diminishing marginal utility plays a role.

NODE 05

Demand Schedule

PRICE

QTY

₹50

10

₹30

20

₹10

45

• Table showing quantities at different prices.
• Illustrates the inverse relationship.
• Tabular representation of Demand.

NODE 06

Demand Curve

• Graphical representation of Price vs Qty.
• Slopes downward from left to right.
• Visualizes the Law of Demand.

NODE 07

Individual & Market

+

=

• Individual demand: One consumer.
• Market demand: Total of all consumers.
• Market demand = Sum of individual demands.

NODE 08

Determinants of Demand

• Price of the good.
• Consumer income & tastes.
• Prices of related goods.
• Expectations & number of consumers.

NODE 09

Normal & Inferior Goods

INC ↑Q ↑NORMAL

INC ↑Q ↓INFERIOR

• Normal: Demand rises as income rises.
• Inferior: Demand falls as income rises.
• Consumers switch to preferred alternatives.
• Based on income relation, not quality.

NODE 10

Substitute Goods

↔

• Goods that satisfy similar wants.
• E.g., Tea and Coffee.
• Price of A ↑ → Demand for B ↑.

NODE 11

Complementary Goods

• Goods commonly used together.
• E.g., Car + Fuel, Printer + Ink.
• Price of A ↑ → Demand for B ↓.

NODE 12

Movement Along Curve

• Caused by change in good's OWN price.
• Other factors constant.
• Price falls = Extension / Increase in Qty.
• Price rises = Contraction / Decrease in Qty.

NODE 13

Shift in Demand

↗

• Caused by non-price determinants (income, tastes).
• Increase = shifts right.
• Decrease = shifts left.
• Curve physically moves.

NODE 14

Elasticity of Demand

• Responsiveness of Qty to Price change.
• % change in Qty ÷ % change in Price.
• Elastic: Strong response.
• Inelastic: Weak response.

NODE 15

Supply

• Quantity producers are willing and able to sell.
• At different prices during a given period.
• Represents seller behavior.

NODE 16

Quantity Supplied

• Amount producers will sell at a particular price.
• Supply = Full relationship.
• Quantity supplied = Particular quantity.

NODE 17

Law of Supply

P ↑Q ↑

vs

P ↓Q ↓

• Other things remaining constant.
• Price and Quantity have a positive relationship.
• Higher prices make production more profitable.

NODE 18

Supply Schedule

PRICE

QTY

₹10

10

₹30

30

₹50

55

• Table showing quantities supplied at different prices.
• Illustrates the positive relationship.

NODE 19

Supply Curve

• Graphical representation of Price vs Qty.
• Slopes upward from left to right.
• Visualizes the Law of Supply.

NODE 20

Determinants of Supply

• Price of product & Input costs.
• Technology & Natural conditions.
• Taxes and Subsidies.
• Number of producers & Expectations.

NODE 21

Movement Along Supply

• Caused by change in good's OWN price.
• Price ↑ = expansion/increase.
• Price ↓ = contraction/decrease.

NODE 22

Shift in Supply

↘

• Increase (right shift): lower costs, better tech, subsidies.
• Decrease (left shift): higher costs, taxes, adverse weather.

NODE 23

Market Equilibrium

• Where Quantity Demanded = Quantity Supplied.
• Establishes Equilibrium Price and Quantity.
• Demand curve ∩ Supply curve.

NODE 24

Excess Demand

• Quantity demanded > Quantity supplied.
• Commonly called a shortage.
• Price below equilibrium.
• Places upward pressure on price.

NODE 25

Excess Supply

• Quantity supplied > Quantity demanded.
• Commonly called a surplus.
• Price above equilibrium.
• Places downward pressure on price.

NODE 26

Price Mechanism

→

→

• Signal: Communicates scarcity & demand.
• Incentive: Influences behavior (higher returns).
• Rationing: Determines who purchases scarce goods.
• Price → Signal → Incentive → Allocation.

NODE 27

Market Adjustment

↑

• Demand ↑ → shortage at old price → upward pressure.
• Supply ↑ → surplus at old price → downward pressure.
• Always seeks a new equilibrium.

NODE 28

Price Ceiling

• Legally imposed maximum price.
• Set below equilibrium.
• Creates Qty Demanded > Qty Supplied (Shortage).
• E.g., Rent controls.

NODE 29

Price Floor

• Legally imposed minimum price.
• Set above equilibrium.
• Creates Qty Supplied > Qty Demanded (Surplus).
• E.g., Minimum prices in selected markets.

NODE 30

Consumer Surplus

• Difference between willing to pay and actually paid.
• Represents net benefit to consumers.
• Groundwork for welfare analysis.

NODE 31

Producer Surplus

• Difference between price received and minimum accepted.
• Represents net benefit to producers.

NODE 32

Market Efficiency

• Equilibrium coordinates decisions perfectly.
• Assumes appropriate competitive markets.
• Markets are not automatically perfect, however.

NODE 33

Market Failure

!

• Unregulated outcome fails to allocate efficiently.
• Causes: Externalities, Public goods.
• Info asymmetry, Market power, Missing markets.
• Requires Government intervention.

NODE 34

Demand–Supply Logic

• Demand + Supply → Price Signals.
• Price Signals → Market Equilibrium.
• Market Equilibrium → Resource Allocation.
• Market Failure → Government / Policy.