Lecture 2 - Demand, Supply And Market Equilibrium | Microeconomics- Interaction between individual buyer-seller PDF Download

 Page 1


 
1 
 
 
 
 
 
 
NME-ICT ECONOMICS 
Microeconomics 
Lesson: DEMAND, SUPPLY AND MARKET EQUILIBRIUM 
Lesson Author: Ajay Gupta 
S K Sharma 
College/Dept: Department of Economics in Shyamlal 
College (Evening), University of Delhi. 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Page 2


 
1 
 
 
 
 
 
 
NME-ICT ECONOMICS 
Microeconomics 
Lesson: DEMAND, SUPPLY AND MARKET EQUILIBRIUM 
Lesson Author: Ajay Gupta 
S K Sharma 
College/Dept: Department of Economics in Shyamlal 
College (Evening), University of Delhi. 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2 
 
Table of Contents 
1. Learning Outcomes 
2. Introduction 
2.1 Concept of Demand 
2.1.1 Quantity Demanded 
2.1.2 Demand Schedule 
2.1.3 Demand Curve 
2.1.4 Demand Function 
2.2 Law of Demand 
2.3 Determinants of Demand 
2.4 Change in Demand and Change in Quantity Demanded 
3. Concept of Supply 
3.1 Supply Schedule 
3.1.1 Supply Curve 
3.1.2 Supply Function 
3.2 Law of Supply 
3.3 Determinants of Supply 
4. Market Equilibrium 
4.1 Necessary condition for equilibrium 
4.2 Change in equilibrium 
5. Summery 
6. Check your knowledge 
7. Glossary 
8. MCQs 
9. References 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Page 3


 
1 
 
 
 
 
 
 
NME-ICT ECONOMICS 
Microeconomics 
Lesson: DEMAND, SUPPLY AND MARKET EQUILIBRIUM 
Lesson Author: Ajay Gupta 
S K Sharma 
College/Dept: Department of Economics in Shyamlal 
College (Evening), University of Delhi. 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2 
 
Table of Contents 
1. Learning Outcomes 
2. Introduction 
2.1 Concept of Demand 
2.1.1 Quantity Demanded 
2.1.2 Demand Schedule 
2.1.3 Demand Curve 
2.1.4 Demand Function 
2.2 Law of Demand 
2.3 Determinants of Demand 
2.4 Change in Demand and Change in Quantity Demanded 
3. Concept of Supply 
3.1 Supply Schedule 
3.1.1 Supply Curve 
3.1.2 Supply Function 
3.2 Law of Supply 
3.3 Determinants of Supply 
4. Market Equilibrium 
4.1 Necessary condition for equilibrium 
4.2 Change in equilibrium 
5. Summery 
6. Check your knowledge 
7. Glossary 
8. MCQs 
9. References 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
3 
 
1. Learning outcomes 
 
? After you have read this chapter, you would be able to understand the concept of 
price mechanism and its components – Demand, Supply and equilibrium price and 
equilibrium quantity. 
? Explain the determinants of demand for and supply of goods and services. 
? Compare the change in quantity demanded (supplied) and change in demand 
(supply).  
? Describe the interaction between consumers (buyers) and producers (sellers to 
determine the equilibrium price and equilibrium quantity. 
 
2. Introduction 
Demand and supply explain the concept of price mechanism. On the demand side, buyers 
(i.e. individuals, firms and government) earn income and spend on goods and services while 
on the supply side, sellers (i.e. firms) produce and supply goods and services.  
 
2.1 Concept of Demand: 
 
The demand for a commodity is essentially consumers attitude and reaction towards 
rise to actions in purchasing units of a commodity at various given prices. Precisely stated, 
the demand is a quantity of a product that a consumer or buyer would be willing & able to 
buy at a given price in a given period of time. 
 
? An individual’s desire for a good to satisfy a particular want backed by her 
willingness and ability to pay gives rise to demand for that good. If and only if 
individuals have means to pay that demand becomes effective in the market for a 
good. 
For instance: A Beggar desires milk, but has no purchasing power. Hence a 
beggar’s desire for milk does not constitute an effective demand for milk. As a 
result, a Beggar cannot participate in market activities. 
 
? Now, we can say that there are four conditions must be fulfilled. 
These are: 
 
1 Willingness and desire 
2 Their desire must be supported by income i.e 
Ability to Pay 
3 Given prices of Commodity and  
4 Given period of time 
 
Demand for good in a market depends on many factors, some of important 
factors are: 
1 Prices of related goods, 
2 Consumer’s taste or preference scale, 
3 Consumer’s expectations and  
4 Range of goods and services availability to consumers etc. 
 
Page 4


 
1 
 
 
 
 
 
 
NME-ICT ECONOMICS 
Microeconomics 
Lesson: DEMAND, SUPPLY AND MARKET EQUILIBRIUM 
Lesson Author: Ajay Gupta 
S K Sharma 
College/Dept: Department of Economics in Shyamlal 
College (Evening), University of Delhi. 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2 
 
Table of Contents 
1. Learning Outcomes 
2. Introduction 
2.1 Concept of Demand 
2.1.1 Quantity Demanded 
2.1.2 Demand Schedule 
2.1.3 Demand Curve 
2.1.4 Demand Function 
2.2 Law of Demand 
2.3 Determinants of Demand 
2.4 Change in Demand and Change in Quantity Demanded 
3. Concept of Supply 
3.1 Supply Schedule 
3.1.1 Supply Curve 
3.1.2 Supply Function 
3.2 Law of Supply 
3.3 Determinants of Supply 
4. Market Equilibrium 
4.1 Necessary condition for equilibrium 
4.2 Change in equilibrium 
5. Summery 
6. Check your knowledge 
7. Glossary 
8. MCQs 
9. References 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
3 
 
1. Learning outcomes 
 
? After you have read this chapter, you would be able to understand the concept of 
price mechanism and its components – Demand, Supply and equilibrium price and 
equilibrium quantity. 
? Explain the determinants of demand for and supply of goods and services. 
? Compare the change in quantity demanded (supplied) and change in demand 
(supply).  
? Describe the interaction between consumers (buyers) and producers (sellers to 
determine the equilibrium price and equilibrium quantity. 
 
2. Introduction 
Demand and supply explain the concept of price mechanism. On the demand side, buyers 
(i.e. individuals, firms and government) earn income and spend on goods and services while 
on the supply side, sellers (i.e. firms) produce and supply goods and services.  
 
2.1 Concept of Demand: 
 
The demand for a commodity is essentially consumers attitude and reaction towards 
rise to actions in purchasing units of a commodity at various given prices. Precisely stated, 
the demand is a quantity of a product that a consumer or buyer would be willing & able to 
buy at a given price in a given period of time. 
 
? An individual’s desire for a good to satisfy a particular want backed by her 
willingness and ability to pay gives rise to demand for that good. If and only if 
individuals have means to pay that demand becomes effective in the market for a 
good. 
For instance: A Beggar desires milk, but has no purchasing power. Hence a 
beggar’s desire for milk does not constitute an effective demand for milk. As a 
result, a Beggar cannot participate in market activities. 
 
? Now, we can say that there are four conditions must be fulfilled. 
These are: 
 
1 Willingness and desire 
2 Their desire must be supported by income i.e 
Ability to Pay 
3 Given prices of Commodity and  
4 Given period of time 
 
Demand for good in a market depends on many factors, some of important 
factors are: 
1 Prices of related goods, 
2 Consumer’s taste or preference scale, 
3 Consumer’s expectations and  
4 Range of goods and services availability to consumers etc. 
 
 
4 
 
When there is a change in any of these factors, demand for a consumer for a 
good changes. 
 
2.1.1 Quantity Demanded 
 
The amount/ quantity of a product that consumer wishes to purchase called 
quantity demanded. It is a flow concept. For example:- 2 Ice-cream per day, 
flow concept becomes time dimensional. i.e a period of time. 
 
2.1.2 Demand Schedule 
 
A demand schedule is one way of showing the relationship between quantity 
demanded and its affecting factors (Like-Price). It can be divided into two parts 
i.e 
 
(i) Individual demand schedule (for one consumer) 
(ii) Market demand schedule (for all the consumers) 
 
We can explain these demand schedules with the help of tables 
Table 1 
Individual Demand Schedule 
 
Price of X-Commodity ( P
x
) Quantity Demanded (Q
x
) 
 
1 
2 
3 
4 
 
4 
3 
2 
1 
 
 
 
 
 
Market Demand Schedule 
 
P
x
 A Consumer B Consumer Market demand 
 
1 
2 
3 
4 
 
 
4 
3 
2 
1 
 
5 
4 
3 
2 
 
 
9 
7 
5 
3 
 
2.1.3 Demand Curve 
 
? The demand curve is graphical presentation of a demand schedule (ceteris 
paribus). It captures relationship between the quantities of a good which 
consumers would be willing to purchase at alternative prices, other things 
remaining the same demand curve can be divided into two parts such as:- 
(1) Individual demand curve 
(2) Market demand curve 
 
Page 5


 
1 
 
 
 
 
 
 
NME-ICT ECONOMICS 
Microeconomics 
Lesson: DEMAND, SUPPLY AND MARKET EQUILIBRIUM 
Lesson Author: Ajay Gupta 
S K Sharma 
College/Dept: Department of Economics in Shyamlal 
College (Evening), University of Delhi. 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2 
 
Table of Contents 
1. Learning Outcomes 
2. Introduction 
2.1 Concept of Demand 
2.1.1 Quantity Demanded 
2.1.2 Demand Schedule 
2.1.3 Demand Curve 
2.1.4 Demand Function 
2.2 Law of Demand 
2.3 Determinants of Demand 
2.4 Change in Demand and Change in Quantity Demanded 
3. Concept of Supply 
3.1 Supply Schedule 
3.1.1 Supply Curve 
3.1.2 Supply Function 
3.2 Law of Supply 
3.3 Determinants of Supply 
4. Market Equilibrium 
4.1 Necessary condition for equilibrium 
4.2 Change in equilibrium 
5. Summery 
6. Check your knowledge 
7. Glossary 
8. MCQs 
9. References 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
3 
 
1. Learning outcomes 
 
? After you have read this chapter, you would be able to understand the concept of 
price mechanism and its components – Demand, Supply and equilibrium price and 
equilibrium quantity. 
? Explain the determinants of demand for and supply of goods and services. 
? Compare the change in quantity demanded (supplied) and change in demand 
(supply).  
? Describe the interaction between consumers (buyers) and producers (sellers to 
determine the equilibrium price and equilibrium quantity. 
 
2. Introduction 
Demand and supply explain the concept of price mechanism. On the demand side, buyers 
(i.e. individuals, firms and government) earn income and spend on goods and services while 
on the supply side, sellers (i.e. firms) produce and supply goods and services.  
 
2.1 Concept of Demand: 
 
The demand for a commodity is essentially consumers attitude and reaction towards 
rise to actions in purchasing units of a commodity at various given prices. Precisely stated, 
the demand is a quantity of a product that a consumer or buyer would be willing & able to 
buy at a given price in a given period of time. 
 
? An individual’s desire for a good to satisfy a particular want backed by her 
willingness and ability to pay gives rise to demand for that good. If and only if 
individuals have means to pay that demand becomes effective in the market for a 
good. 
For instance: A Beggar desires milk, but has no purchasing power. Hence a 
beggar’s desire for milk does not constitute an effective demand for milk. As a 
result, a Beggar cannot participate in market activities. 
 
? Now, we can say that there are four conditions must be fulfilled. 
These are: 
 
1 Willingness and desire 
2 Their desire must be supported by income i.e 
Ability to Pay 
3 Given prices of Commodity and  
4 Given period of time 
 
Demand for good in a market depends on many factors, some of important 
factors are: 
1 Prices of related goods, 
2 Consumer’s taste or preference scale, 
3 Consumer’s expectations and  
4 Range of goods and services availability to consumers etc. 
 
 
4 
 
When there is a change in any of these factors, demand for a consumer for a 
good changes. 
 
2.1.1 Quantity Demanded 
 
The amount/ quantity of a product that consumer wishes to purchase called 
quantity demanded. It is a flow concept. For example:- 2 Ice-cream per day, 
flow concept becomes time dimensional. i.e a period of time. 
 
2.1.2 Demand Schedule 
 
A demand schedule is one way of showing the relationship between quantity 
demanded and its affecting factors (Like-Price). It can be divided into two parts 
i.e 
 
(i) Individual demand schedule (for one consumer) 
(ii) Market demand schedule (for all the consumers) 
 
We can explain these demand schedules with the help of tables 
Table 1 
Individual Demand Schedule 
 
Price of X-Commodity ( P
x
) Quantity Demanded (Q
x
) 
 
1 
2 
3 
4 
 
4 
3 
2 
1 
 
 
 
 
 
Market Demand Schedule 
 
P
x
 A Consumer B Consumer Market demand 
 
1 
2 
3 
4 
 
 
4 
3 
2 
1 
 
5 
4 
3 
2 
 
 
9 
7 
5 
3 
 
2.1.3 Demand Curve 
 
? The demand curve is graphical presentation of a demand schedule (ceteris 
paribus). It captures relationship between the quantities of a good which 
consumers would be willing to purchase at alternative prices, other things 
remaining the same demand curve can be divided into two parts such as:- 
(1) Individual demand curve 
(2) Market demand curve 
 
 
5 
 
Individual Demand Curve : It is the graphical representation of individual demand 
schedule (Figure 1) 
 
 
Figure 1 
 
 
 
 
 
 
 
 
 
Marked Demand Curve 
It is the horizontal summation of individual demand curves. 
 
 
 
 
Fig 2 : Market Demand Curve 
 
 
2.1.4 Demand Function: 
 
A Functional relationship between quantity demanded and all the variables that 
influences it. There are two type of demand functions, ie. 
 
(A) Individual demand function