Question

4. With the help of a diagram state whether supply of a good is directly or inversely
related to its price. Explain any four factors on which supply of a commodity
depends.
(ICSE 2013) (See Sec. 2.4.2 and 2.3)​

Answer 1

Answer:

Meaning of Demand

u In ordinary speech, the term demand is many times confused with ‘desire’ or ‘want’.

u Desire is only a wish to have any thing.

u In economics demand means more than mere desire.

u Demand in economics means an effective desire for a commodity i.e. desire backed by the

‘ability to pay’ and ‘willingness to pay’ for it.

u Thus, demand refers to the quantity of a good or service that consumers are willing and able

to purchase at different prices during a period of time.

u Thus, defined, the term demand shows the following features:

1. Demand is always with reference to a PRICE.

2. Demand is to be referred to IN A GIVEN PERIOD OF TIME.

3. Consumer must have the necessary purchasing power to back his desire for the com-

modity.

4. Consumer must also be ready to exchange his money for the commodity he desires.

u E.g. Mr. A’s demand for sugar at ` 15 per kg. is 4 kgs. per week.

Determinants of Demand

For estimating market demand for its products, a firm must have knowledge about—

(a) the determinants of demand for its product, and

(b) the nature of relationship between demand and is determinants.

The various factors on which the demand for a product/commodity depends are as follows:—

u Price of the commodity:

1. Other things being equal, the demand for a commodity is inversely related with its price.

2. It means that a rise in price of a commodity brings about fall in its demand and vice

versa.

3. This happens because of income and substitution effects.