ACKNOWLEDGEMENT

I hereby convey my sincere thanks to my Economics Teacher……. For her constant guidance and
support during the project. With her help, I was able to comprehend the concepts undertaken and
have a holistic understanding of the same. I am grateful for this opportunity.

I would also like to convey thanks to my parents for their supplementary help.

Uday

Class XI
 CERTIFICATE

This is to certify that Uday of class XI has successfully completed the Economics Project on the topic
of ‘Demand and Supply’ as per the guidelines.

Teacher’s Signature:

Teacher’s Name:
LIST OF CONTENT
Demand - Introduction

To understand the meaning of demand, we can consider a situation where a fruit seller is selling only
oranges. Howevermuch, the seller might have oranges, the demand of oranges will imply the total
number of oranges that the customers are willing and able to purchase.

In conclusion, demand is the quantity of a commodity a consumer is willing as well as able to purchase
at various prices and particular periods of time. One must note that it differs from want/desire as the
latter are simply wishful thinking. Demand on the other hand, sums up the desire as well as the ability
to purchase a good or service.
 Types of Demand

• Direct Demand –
Direct demand is nothing but demand for final goods and services i.e., the ones used by the consumers.
• Derived demand –
The demand for intermediate goods is called derived demand. For e.g., demand for steel is derived by
the demand for construction of houses/ demand for real estate.
Law of Demand

Demand is a derivative of consumer behavior and primarily the consumer behavior is derived by the
price of the commodity. For e.g., if last year in December, the oranges were priced at Rs 50 per KG and
if this year, the same oranges are priced at Rs 100 per KG without any changes except for time period,
a person in a rational & normal course would purchase lesser quantity of oranges, since they’ve
become expensive.

Law of Demand -

All other things remained unchanged i.e., Ceteris paribus, the quantity demanded for a good increase
when its prices decrease and similarly, the quantity demanded for a good decrease when its prices
increase.
Demand Schedule & Demand Curve:

The relationship between the quantity demanded of a good and its price can be represented by
demand schedule, providing the details of quantity demanded at various prices of the good, given
other variables constant.

Quantity of Oranges 100 10

Prices of Oranges 10 100

The same relationship can also be plotted on a graph depicting quantity demanded for a good at all
prices possible.

120

100

80

60

40

20

0
0 50 100 150
Individual and market demand

The sum of the demands of all the buyers in a market is called market demand. The market demand
curve is the horizontal sum of the demand curves of all buyers in the market.

Individual 1

Qty of Oranges Prices of Oranges

100 10
10 100

120
100 100
80
60
40
20
10
0
0 20 40 60 80 100 120

Individual 2

Qty of Oranges Prices of Oranges

90 5
10 95

100 95
80
60
40
20
0 5
0 20 40 60 80 100
Market Demand

Qty of Oranges Prices of Oranges

190 5
20 95

100
95
80

60

40

20
5
0
0 50 100 150 200
Types of goods & its effect on demand

Substitute goods –

A good that can be consumed in place of another good. For example, apples and oranges.

The demand for oranges will fall if apples start selling at lower price as people will start buying apples
too and ultimately fewer oranges as they’ve apples also in their basket now.

Complementary goods -

A good that is consumed with another good. For example, ice cream and cones.

The demand for cones will increase if ice cream starts selling at lower price as people will start buying
more ice creams and thus, would need cones for the same too.
Supply

The concept of demand is closely linked to the concept of supply. While customers want to pay the
lowest possible price for goods and services, suppliers try to make as much profit as they can. In case
a company asks for a higher price for its product, then its demand in terms of volume goes down, and
it results in lower sales and profits.

Conversely, if a company charges very little for a product, then its demand in terms of volume will
increase, but lower prices mean that such an organization will not generate enough revenue to cover
its costs and make a profit.

In conclusion, the amount of a good, service, or resource that people are willing and able to sell
during a specified period at a specified price.
Law of supply

Supply is the derivative of the seller behavior to maximize his/her revenue. Thus, as the price
increases the supplier wants to sell more quantity to earn more revenue. For e.g., the orange seller
would want to sell more oranges when the price has increased to Rs 100 from Rs 80.

All other things remained unchanged i.e., Ceteris paribus, the quantity supplied for a good increase
when its prices increase and similarly, the quantity supplied for a good decrease when its prices
increase.
Supply Schedule & Supply Curve:

The relationship between the quantity supplied of a good and its price can be represented by demand
schedule, providing the details of quantity supplied at various prices of the good, given other variables
constant.

Quantity of Oranges 40 80
Prices of Oranges 10 100
Revenue 400 8000

The same relationship can also be plotted on a graph depicting quantity supplied for a good at all prices
possible.

120
100
80
60
40
20
0
0 20 40 60 80 100
Individual and market supply

The sum of the quantity supplied of all the suppliers in a market is called market supply. The market
supply curve is the horizontal sum of the supply curves of all suppliers in the market.

Individual 1

120
100
80
60
40
20
0
0 20 40 60 80 100

Individual 2

120
100
80
60
40
20
0
0 20 40 60 80

Market Supply

120
100
80
60
40
20
0
0 20 40 60 80
Types of goods & its effect on demand

Substitute goods –

A good that can be produced or supplied in place of another good. For example, a truck and an SUV
in an auto factory.

The supply for SUV will fall if price of mini truck rises.

Complementary goods -

A good that can be produced or supplied with another good. For example, straw is a complement in
production of wheat.

The supply for straw will increase if the price of wheat increases.
Shift in Demand & Supply

The main influences on buying plans that change demand are:

• Prices of related goods

• Income
• Expectations
• Number of buyers
• Preferences

The main influences on selling plans that change supply are:

• Prices of related goods

• Prices of resources and other Inputs
• Expectations
• Number of sellers
• Productivity

If any of the factors mentioned above, positively affect the demand or supply then the demand or
supply shifts towards the right, meanwhile, price can only move the demand or supply along the
curve.
 Market Equilibrium

When the quantity demanded equals the quantity supplied—when buyers’ and sellers’ willingness to
buy & offer meets, that’s when the equilibrium is achieved. It can be said that when demand curve
meets supply curve market equilibrium is achieved.

• Equilibrium price -
The price at which the quantity demanded equals the quantity supplied.
• Equilibrium quantity -
The quantity bought and sold at the equilibrium price.

When the buyer wants to buy 40 oranges at Rs 20, 30 oranges at Rs 40 and 20 oranges at Rs 60;
subsequently, seller wants to sell 40 oranges at Rs 60, 30 oranges at Rs 40 and 20 oranges at Rs 20.

Then, the market equilibrium is achieved at 30 Oranges at Rs 40.