Demand for a commodity refers to the quantity of the commodity that a buyer is willing to buy at given price at given time. Individual demand is the quantity of a commodity that an individual buyer is willing to buy at the given price at given time.
Market demand is the total quantity of a commodity that all the individual buyers in the market are willing to buy at given price at given time.
The determinants of individual demand are - price of the commodity, price of related goods, income of the buyer, tastes, preferences and fashion. The determinants of market demand are - number of individual buyers buying that commodity, distribution of income and wealth and climatic condition in addition to the determinants of individual demand.
The law of demand states that if all other factors affecting demand remain constant, the buyers will buy more quantity of a commodity at lower price and less of it at a higher price. Demand curve is a diagrammatic representation of law of demand. The demand curve of a commodity slopes downwards from left to right.
Supply
Supply of a commodity is the quantity of a commodity that a seller or firm offers for sale at given price per unit of time. The total quantity available with a seller or firm at a particular point of time is called stock. Supply is that part of stock of the commodity that the seller is ready to sell at a given price during a given period of time.
Individual supply schedule shows the quantities of a commodity offered for sale by an individual firm at different prices in a tabular form. Individual supply curve is derived from an individual supply schedule. Market supply is the total quantity of a commodity offered for sale by all the firms in the market at given price and given time.
The determinants of individual supply are - price of the commodity, price of other related goods, change in technology of production, change in price of inputs, objective of the firm and government policy. The determinants of market supply are number of firms supplying the commodity, expected future price in addition to the determinants of individual supply.
The law of supply states that other factors determining supply remaining constant, price of a commodity and quantity suppled are directly related. Supply curve is a diagrammatic representation of law of supply. The supply curve of a commodity slopes upwards as per law of supply.
Price Determination
The amount of money given by a buyer to a seller in exchange of a unit of a goods or service is treated as price of that good or service. Equilibrium price is the price at which both quantity demanded and supplied of a commodity are equal. Equilibrium price is determined by the market forces of demand and supply of a commodity.
Excess demand is a situation when at a given price quantity demanded of a commodity is greater than its quantity supplied. Excess supply is a situation when at a given price quantity supplied of a commodity is greater than its quantity demanded. When there is excess demand of the commodity the price starts rising and it continues to rise till equilibrium price is reached. When there is excess supply of the commodity its price starts falling and continues to fall till equilibrium price is reached.
When demand for a commodity increases but its supply remains the same, both equilibrium price and quantity demanded and supplied will increase. When demand for a commodity decreases but its supply remains the same both equilibrium price and equilibrium quantity demanded and supplied will decrease.
When supply of a commodity increases and its demand remains the same, equilibrium price will decrease and equilibrium quantity demanded and supplied will increase. When supply of a commodity decreases but its demand remains the same equilibrium price will increase but equilibrium quantity demanded and supplied will decrease.
Market
Market refers to the arrangement in a given area where buyers and sellers come in contact with each other directly or indirectly to buy or sell goods. Monopoly and Perfect Competition are two extreme forms of Market structure.
Monopoly is a market structure in which one firm possesses control over the market. It is a market of single seller, who sells a unique product having no close substitutes.
Perfect Competition is a market structure where many firms sell a homogeneous product. There is free entry and exit under this market. Buyers and sellers have perfect knowledge about the market situation.
A wholesaler is a distributor or middleman who sells mainly to retailers and institutions, rather than consumers. A retailer is one who sells varieties of goods or services directly to the general public. Online shopping is the process whereby consumers directly buy goods or services from seller without any wastage of time, without an intermediary service, over internet on computer.
Role of Government
Administered prices are the prices which are fixed by the government below or above the equilibrium price to protect the interests of consumers or producers. Control price is the price which is fixed by the government below the equilibrium price to protect the interest of consumers. Support price is the price which is fixed by the government above the equilibrium price to protect the interest of producers specially farmers. Token price is the price which is fixed by the government or private charitable institutions far below the per unit cost of production of the commodity.
Under dual price system, a part of the total output is sold at control price through fair price shop and the remaining output is sold in the open market at the prevailing market price which is determined by the forces of demand and supply without any intervention of the government.
An increase in tax on a commodity increases the market price of the commodity. Subsidy given on a commodity decreases the market price of the commodity.