Demand Curve:

Demand curve, in economics, a graphic representation of the relationship between

product price and the quantity of the product demanded. It is drawn with price on
the vertical axis of the graph and quantity demanded on the horizontal axis. With
few exceptions, the demand curve is delineated as sloping downward from left to
right because price and quantity demanded are inversely related (i.e., the lower the
price of a product, the higher the demand or number of sales).
OR
The demand curve is a visual representation of how many units of a good or
service will be bought at each possible price. It plots the relationship between
quantity and price that's been calculated on the demand schedule. That's a table that
shows exactly how many units of a good or service will be purchased at various
prices.
As we can see in this figure:
 The price is on the vertical (y) axis and the quantity is on the horizontal (x)
axis.
 This chart plots the conventional relationship between price and quantity.
 The lower the price, the higher the quantity demanded.
 As the price decreases from p0 to p1, the quantity increases from q0 to q1.

 This relationship follows the law of demand. It states that the quantity
demanded will drop as the price rises.
 DEMAND SHIFTS:

A shift in the demand curve is when a determinant of demand other than

price changes. It occurs when demand for goods and services changes even
though the price didn't.

A shift in the demand curve is the unusual circumstance when the opposite
occurs. Price remains the same but at least one of the other five determinants
change. Those determinants are:

 Income of the buyers, Consumer trends and tastes, Expectations of future

price, supply, needs, etc.
 The price of related goods. These can be substitutes, such as beef versus
chicken.
 They can also be complementary, such as beef and Worcestershire sauce.
 The number of potential buyers.
 This determinant applies to aggregate demand only.

Factors That Cause a Demand Curve to Shift:

 When the demand curve shifts, it changes the amount purchased at every
price point. For example, when incomes rise, people can buy more of
everything they want. In the short-term, the price will remain the same and
the quantity sold will increase.

(The same effect occurs if consumer trends or tastes change. If people

switch to electric vehicles, they will buy less gas even if the price of gas
remains the same.)

 The curve shifts to the left if the determinant causes demand to drop. That
means less of the good or service is demanded at every price. That happens
during a recession when buyers' incomes drop. They will buy less of
everything, even though the price is the same.
  The curve shifts to the right if the determinant causes demand to increase.
This means more of the good or service are demanded at every price. When
the economy is booming, buyers' incomes will rise. They'll buy more of
everything, even though the price hasn't changed.

Examples:
Here are examples of how the five determinants of demand other than price can
shift the demand curve.
 Income of the buyers: If you get a raise, you're more likely to buy more of
both steak and chicken, even if their prices don't change. That shifts the
demand curves for both to the right.

 Consumer trends: If there is a disease like bird flu then automatically

customers will buy beef however the price is still same for the chicken but
the demand is lesser that would shift the curve to the left.

 Expectations of future price: When people expect prices to rise in the

future, they will stock up now, even though the price hasn't even changed.
That shifts the demand curve to the right.
  The price of related goods: If the price of beef rises, you'll buy more
chicken even though its price didn't change. The increase in the price of a
substitute, beef, shifts the demand curve to the right for chicken. Reverse
will occur for the sauces and different ingredients we need to cook beef as
they will be bought less because beef is bought less and price will be same.

 The number of potential buyers: This factor affects aggregate demand

only. When there's a flood of new consumers in a market, they will naturally
buy more product at the same price. That shifts the demand curve to the
right.

SUPPLY CURVE:
The supply curve is a graphic representation of the correlation between the cost of
a good or service and the quantity supplied for a given period. In a typical
illustration, the price will appear on the left vertical axis, while the quantity
supplied will appear on the horizontal axis. (Price independent variable and
supplies dependent variable)
Some important points:
 On most supply curves, as the price of a good increases, the quantity of
supplies increases.

 Emerging technology that increases efficiency lowers the labor cost and
therefore price of a good.

 Supply curves can often show if a commodity will experience a price

increase or decrease based on demand, and vice versa.

The supply curve will move upward from left to right, which expresses the law of
supply: As the price of a given commodity increases, the quantity supplied
increases (all else being equal).
SUPPLY CURVE SHIFTS AND REASONS:

The position of a supply curve will change following a change in one or more of
the underlying determinants of supply. For example, a change in costs, such as a
change in labor or raw material costs, will shift the position of the supply curve.

 Rising costs
If costs rise, less can be produced at any given price, and the supply curve will
shift to the left.
  Falling costs:
If costs fall, more can be produced, and the supply curve will shift to the right.
 Any change in an underlying determinant of supply, such as a change in the
availability of factors, or changes in weather, taxes, and subsidies, will shift
the supply curve to the left or right.

 Different factors can shift the supply curve. It must be noted that changes in
prices do not shift the supply curve, but causes a movement along the curve.
In order to shift the curve, there must be changes in external factors that
affect supply.

 Factors that can shift supply include: weather, cost of production, wages,
government taxes/subsidies and technology.

 If the supply curve shifts to the right, there is an increase in supply and more
is supplied at any given price.

 If the supply curve shifts to the left, there is a decrease in supply and less is
supplied at any given price.

 For example: if we consider favorable weather conditions, this will produce

an increase in harvest for commodities such as wheat. This means there will
be an increase in the supply, causing a shift to the right (outwards shift). At
any given price more wheat can be supplied, therefore increasing quantity
supplied.

 A decrease in costs of production: This means business can supply more at

each price. Lower costs could be due to lower wages, lower raw material
costs.

 More firms: An increase in the number of producers will cause an increase

in supply.
 Investment in capacity: Expansion in capacity of existing firms, e.g.
building a new factory.

 Related supply: An increase in supply of a related good e.g. beef and

leather.

 Weather: Climatic conditions are very important for agricultural products.

 Technological improvements. Improvements in technology, e.g. computers,

reducing firms costs.

 Lower taxes: Lower direct taxes (e.g. tobacco tax) reduce the cost of goods.

 Government subsidies: Increase in government subsidies will also reduce

the cost of goods, e.g. train subsidies reduce the price of train tickets.
