A Critical Review of Demand and Supply Framework

Brief Theoretical Review of Demand and Supply Framework

Demand in economics, is the willingness and ability of consumers to purchase a given amount of

a good or service at a given price. Quantity demanded is the amount of a good that buyers are

willing and able to purchase. The Change in quantity demanded (movement along a demand curve) is

caused by a change in a good or service price. A Change in demand (shift of a demand curve) is caused

by other factors such as income or preference.

Demand schedule is a table that shows the quantity demanded of a good or service at different price

levels. Demand curve is what shows how much the buyers are willing to buy at different prices of a

good.

The Law of demand refers to the negative relationship between price and quantity demanded: Ceteris

paribus, as price rises, quantity demanded decreases; as price falls, quantity demanded increases.

Market demand is the sum of all the individual demands for a particular good or service.

Supply is the willingness of sellers to offer a given quantity of a good or service for a given price.
Quantity supplied is the amount of a good that sellers are willing and able to sell.

Change in quantity supplied (movement along a supply curve) is caused by a change in a good or

service price. A Change in supply (shift of a supply curve) is caused by other factors such as costs or
input prices. Supply schedule is what shows the relationship between its market price and the

amount of that commodity that producers are willing to produce and sell, other things held constant.

Supply curve shows how much the sellers are prepared to sell at different prices of a good. The Law of

supply is the positive relationship between price and quantity of a good supplied: An increase in

market price, ceteris paribus, will lead to an increase in quantity supplied, and a decrease in market

price will lead to a decrease in quantity supplied. Market supply is the sum of the supplies of all

sellers.

The supply and demand framework was first introduced by Alfred Marshall in his book, Principles of

Economics on 1890. The supply (market) exhibits the willingness to sell while the demand (market)

exhibits and displays the willingness to buy. In the supply and demand framework, there is a market

equilibrium, where it is achieved when the price and quantity are combined, the point where demand

and supply intersects. Alfred Marshall, creator of Supply and Demand Framework; was a British

economist, and was famous for his book- The Principles of Economics. This book became very popular

and dominant in England when it was published.

The Law of Demand and Supply which was invented by Alfred Marshall, is a theory that explains
how buyers and sellers interact in the market. This Framework is widely used in the past and
today, and became the most fundamental concepts of Economics.
Alfred Marshall defined supply curve or law of supply as a graphic representation of correlation
between the price and the quantity supplied in the market. P stands for Price, and is in the left
axis and Q stands for Quantity Supplied, in horizontal axis. The law of supply states that if the
price increases (decreases) , the quantity supplied increases (decreases), with the assumption of
ceteris paribus or all other things equal. There is a direct, positive relationship between the
quantity supplied and the price, with the assumption of ceteris paribus.

References:
Pettinger, T. (2019), Market Equilibrium Demand and Supply
Bang, J. (2019) Law of Supply
Bang, J. (2019) Law of Demand