1) Theory of Supply and Demand shows how consumer preferences determine consumer demand for commodities, while business costs determine the supply of commodities.
2) The relationship that exists between price and quantity bought is called as the Demand Schedule or the Demand Curve. The quantity demanded increases with the fall in price.
3) Quantity and Price are inversely related.
4) The graphical representation of the demand schedule is called as the Demand Curve.
5) Law of Downward – sloping demand: When the Price of a commodity is raised (and other things being constant), buyers tend to buy less of the commodity. Similarly, when the price is lowered, other things being constant, quantity demanded increases.
6) Market Demand curve obey the Law of Downward- Slopping demand
7) A Down ward slopping Demand Curve relates Quantity Demanded to Price
8) Factors influences the Demand Curve
- Average levels of income - The size of market/population
- The prices and availability of related goods - Tastes or Preferences - Special Influences
9) The Supply Schedule relates the quantity supplied of a good to its market price, other things being constant.
10) Shifts in Supply Means when changes in factors other than goods own price affect the quantity supplied.
11) The Supply Schedule (or Supply Curve) for a commodity shows the relationship between its market price and the amount of that commodity those producers is willing to produce and sell, other things being constant.
12) Forces behind the supply Curve:
- Cost of Production - Prices of inputs and technological advances - Government Policy
- Prices of related goods - Special Factors like weather influence on farming and agro-industry
13) Supply increases (or Decreases) when the amount supplied increases (or Decreases) at each market price.
14) Supply and demand interacts to produce equilibrium price and quantity or market equilibrium.
15) The Market Equilibrium comes at that price and quantity where the forces of supply and demand are in balance.
16) At the Equilibrium price, the amount that buyers want to buy is just equal to the amount that sellers want to sell.
17) A Market equilibrium comes at the price at which quantity demanded equals quantity supplied.
18) The Equilibrium Price is also called as the Market Clearing Price.