Demand & Supply
Economics · मांग और पूर्ति
📋Quick Overview
The Law of Demand states that, ceteris paribus (other things being equal), when the price of a good rises, its quantity demanded falls, and vice versa — an INVERSE relationship. The Law of Supply states that when price rises, quantity supplied also rises — a DIRECT relationship. Elasticity measures the responsiveness of demand or supply to changes in price, income, or other factors. The equilibrium price is where demand equals supply.
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Demand = INVERSE (price up, demand down). Supply = DIRECT (price up, supply up). This is the MOST fundamental concept!
📖Law of Demand vs Law of Supply
📖Types of Elasticity
| Type | Definition | Formula | Key Point |
|---|---|---|---|
| Price Elasticity of Demand (PED) | Responsiveness of demand to price change | % change in Qd / % change in P | Elastic (>1), Inelastic (<1), Unitary (=1). Luxury goods = elastic; Necessities = inelastic |
| Income Elasticity of Demand (YED) | Responsiveness of demand to income change | % change in Qd / % change in Income | Normal goods: positive (+). Inferior goods: negative (-). Luxury: >1 |
| Cross Elasticity of Demand (XED) | Responsiveness of demand for good A to price change of good B | % change in Qd of A / % change in P of B | Substitutes: positive (+). Complements: negative (-). Unrelated: zero |
| Price Elasticity of Supply (PES) | Responsiveness of supply to price change | % change in Qs / % change in P | Perishable goods = inelastic; Manufactured goods = more elastic |
📝Exceptions to Law of Demand & Key Concepts
- •Giffen Goods: Inferior goods where demand INCREASES when price rises (e.g., coarse grain like bajra for very poor). Named after Robert Giffen. Violates law of demand.
- •Veblen Goods: Luxury/prestige goods where demand INCREASES when price rises (snob effect). People buy MORE because it's expensive (e.g., diamonds, designer goods). Named after Thorstein Veblen.
- •Equilibrium Price: Price where Demand = Supply. Market is in balance. No excess demand or supply.
- •Consumer Surplus: Difference between what consumer is WILLING to pay and what they ACTUALLY pay. Higher the surplus, better for consumer.
- •Producer Surplus: Difference between what producer RECEIVES and the minimum they would ACCEPT. Higher the surplus, better for producer.
- •Factors affecting Demand: Price, income, taste, price of related goods, expectations, population
- •Factors affecting Supply: Price, technology, input costs, taxes/subsidies, expectations, number of sellers