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 UNIT 5

SIMPLE APPLICATION OF TOOLS

OF DEMAND AND SUPPLY CURVE
POINTS TO REMEMBER
❑ With the help of curves, these variables can be studied, which represent
positive or negative relation.
❑
m
Variables are of two types (i) dependent variables (ii) independent variables.

dependent variables are represented on OX-axis.

c o
Generally independent variables are represented on OY-axis, where as

.
❑
reasonable proportion. a
While plotting curves, value on OX-axis or OY-axis should be according to

m
Relationship between variables can be understood easily through curves
a
❑
because their effect is long lasting on our minds.
❑
yn
In Economics demand and supply curves are used to express following :
1.
d
Data relating to demand and supply.
2.
tu
To determine equilibrium in various economic activities.

S
3. To show the effect of change in demand and supply on equilibrium and
market price.
4. For graphic representation of different categories of elasticity of demand
and supply.
5. Determination of floor price and price ceiling in situation of excess
demand and excess supply.
❑ Govt. determines maximum and minimum price ceiling with the help of
demand and supply.
❑ Govt. determines tax rate in accordance with elasticity of demand and
supply.

48 XII – Economics
❑ Demand and supply curve explain equilibrium under following situations :
1. Rate of interest (Demand for money and supply for money)
2. Wage rate
3. Price determination of factors of production.
4. Determination of foreign exchange rate.
5. Determination of tax.
6. Saving of consumer.

m
c o
.
a
m
a
yn
d
tu
S

49 XII – Economics