11/6/2022

Production and
Distribution of
Wealth: Supply
and Demand
Pakistan Studies (Pedagogy)
Assignment #2

B.Ed. Hons. 5th Semester

Group Members:
Zarina Kulsoom
Shabina Damani
Atiqa Farid
Rahina
Armaghan
Pakiatan Studies (Pedagogy)

TABLE OF CONTENTS

S. No. Topic Page No.

1 Title Page 01

2 Table of Contents 01

3 Production and distribution 02

of wealth: Supply and
demand
4 Introduction 02

5 Definition of demand and 02

supply
6 Factors that affect demand 02

7 Factors that affect supply 03

8 Law of Supply and Demand 04

9 Supply and Demand Curve 04

Examples

10 Example 1 05

11 Example 2 05

12 Supply and Demand Graph 05

13 Conclusion 06

14 References 06

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Production and distribution of wealth: Supply and demand

Introduction:
Supply and demand are economic are the economic forces of the free market that control what
suppliers are willing to produce and what consumers are willing and able to purchase.
Definition of demand and supply:
Demand refers to how much of that product, item, commodity, or service consumers are willing
and able to purchase at a particular price.
The term supply refers to how much of a certain product, item, commodity, or service suppliers
are willing to make available at a particular price.
In other words, supply pertains to how much the producers of a product or service are willing to
produce and can provide to the market with limited amount of resources available. Whereas,
demand is how much of that product or service the buyers desire to have from the market.
Factors that affect Demand:
Here are some of the factors that affect demand:
 Product price
 Buyer income
 Buyer preference
 Buyer expectation
 Available substitutes
 Complementary products
 Market size
Product price: As the price of a commodity increases, the consumer demand for it decreases.
People will buy fewer items of the pricier commodity and look around to find other less
expensive options.
Buyer income: The buyer's income will determine their purchasing capacity and the demand for
a product. An increase in income will lead to a higher purchasing capacity and a rise in demand,
while a decrease in income will lower purchasing capacity and demand. There is also a
correlation between income and quality of commodities.
Quality goods will experience a rise in demand with an increase in income, and lesser goods will
experience a decrease in demand. However, if the income falls, there will be a decreased demand
for quality goods and an increased demand for inexpensive goods.

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Buyer preference: Changes in trends affect buyers' preferences for a product, as do changes in
societal customs and habits. Popular products will experience rising demand, but that can change
swiftly when trends change.
Buyer expectation: The demand for a product can rise if buyers think it is going to be scarce,
unavailable or more expensive in the near future. Going by their expectations, they will buy and
stock more of it in the present time, so there is a definite connection between current demand and
future pricing.
Available substitutes: If a particular commodity becomes pricier, the demand for substitute
commodities will increase. For instance, if you have always bought a specific type of cereal and
its price increases to the point it becomes unaffordable, you may begin buying a similar, less
expensive type of cereal. As a result, the demand for the less expensive and available cereal will
increase.
Complementary products: With complementary products, the increase in the price of one can
cause a fall in demand for the other. That is because the price increase will make it difficult to
use both products together. For instance, if the prices of printing ink cartridges go up
exponentially, it would be expensive to use a printer and the demand for printers will decrease.
Market size: The size of a market determines the number of buyers purchasing available
products. If the market size is small, there will be limited buyers, and the demand for the
commodities will be low. As the market size expands, there will be more buyers for the products,
and the demand for them will rise.
If there is an increase in the market of buyers of a certain age, there will be a rising demand for
the commodities that this age group normally requires. For example, if there is an increase in the
birthrates in a certain area, there will be an increased demand for baby food and similar products.
Factors that affect supply:
The following factors can affect supply:
 Production capacity
 Production costs
 Competitors
 Availability of materials
 Supply chains
Production capacity: Production capacity is the product output compared to resource input. If
there is a rise in market demand, the manufacturer will increase the output to provide more
supplies.
Production costs: Production costs are manufacturing expenses like materials, employee wages
and utilities like electricity and water. If the production costs are high, the product market prices

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will increase. If the market can sustain high prices, the supply will increase. If it can't, there will
be a decrease in supply.
Competitors: Competitors are any companies that produce the same product or service in a
similar price range. Competitors could make it difficult for a company to continue producing a
supply of products at a reasonable price if consumers choose alternatives. They may reduce
production or diversify to other goods to get a better market outcome.
Availability of materials: The availability of inexpensive raw materials can help increase
production and the supply of products. If the raw materials are not easily available or are too
expensive, the production will decrease and result in a lower supply to the market.
Supply chains: The producer should have a well-managed, affordable and reliable supply chain
in place at every stage of the production process, from procuring raw materials to producing the
product to moving them in the market-bound phase. That will ensure an efficient market supply
to meet consumer demand.
Law of Supply and Demand:
Demand and supply play a key role in setting price of a particular product in the market
economy. Since demands of buyers are endless, not all that is demanded can be supplied due to
scarcity of resources. This is where the relationship of demand and supply plays a significant
role, allowing efficient allocation of resources and determining a market price for the product or
service, known as equilibrium price. This price reflects the price at which suppliers are willing to
supply and the buyers are willing to buy from the market.
The mechanism of determining market price through demand and supply can be better
understood by observing the market economic theories.
Supply and Demand Curve Examples:
According to the law of demand, as the price of a product or service rises, the demand of buyers
will decrease for it due to limited amount of cash they have to make purchases.

Example 1: A shopkeeper was offering a box of chocolate at price of $20, for which he was able
to sell on average 50 boxes every week. He decided to offer 50% discount, decreasing the price
to $10. This resulted in increase of his sales to 100 boxes each week.
According to the law of supply, as the price of a product increases, the suppliers will be more
willing to supply that product as they can enjoy higher profits by selling that product or service.

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Example 2: A factory worker is paid $10 for providing his services to the factory for 50 hours
per day. However, due to extra workload, more services were required per day for which the
worker would only provide 100 hours if he were paid more i.e. $20.
From this we can conclude that demand has an inverse relationship with price; whereas, supply
has a direct relationship with price. Therefore, when both demand and supply are put together,
we can determine the equilibrium price, which is the market price of a product or service. This is
the point at which the quantity supplied and quantity demanded is exactly equal and the
resources are efficiently allocated.
Supply and Demand Graph:

Conclusion:
Supply & Demand means the amount of goods or services companies are willing to produce and
the amount of goods or services that consumers are willing to purchase. In economics, the law of
supply and demand is used to determine the prices of goods and services in the marketplace.

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Understanding the principles behind this law helps gain perspective into how the marketplace
works.
References:
 Supply and Demand: Definition and How it Works. By Indeed Editorial Team.
September 15, 2021
https://www.indeed.com/career-advice/career-development/supply-and-demand-
definition
 https://www.myaccountingcourse.com/accounting-dictionary/supply-and-demand
 https://www.education.com/download/lesson-plan/supply-and-demand/supply-and-
demand.pdf
 https://study.com/academy/popular/supply-and-demand-activities-for-kids.html

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