Demand (The Buyer’s Side) 🛍️
Demand is the quantity of a good or service that consumers are willing and able to buy at various prices during a given period. The key words here are “willing” and “able.”
The Law of Demand
This is a very simple and logical rule:
- When the price of a good falls 🔽, the quantity demanded for it rises 🔼.
- When the price of a good rises 🔼, the quantity demanded for it falls 🔽.
Simple Explanation: People naturally want to buy more of something when it’s cheaper.
Example: If the price of a movie ticket is ₹150, you might go to the movies twice a month. If the price drops to ₹100, you might go four times a month. If it increases to ₹300, you might go only on special occasions.
Supply (The Seller’s Side) 🏭
Supply is the quantity of a good or service that producers are willing and able to offer for sale at various prices during a given period.
The Law of Supply
This is the opposite of the Law of Demand:
- When the price of a good rises 🔼, the quantity supplied of it also rises 🔼.
- When the price of a good falls 🔽, the quantity supplied of it also falls 🔽.
Simple Explanation: Producers are motivated by profit. They will want to produce and sell more of something when they can get a higher price for it.
Example: If the price of mangoes is high, more farmers will find it profitable to grow and sell mangoes. If the price of mangoes is very low, some farmers might decide not to sell their produce or grow something else next season.
Equilibrium: Where Supply Meets Demand
The market is always trying to find a balance. This balance point is called equilibrium.
Equilibrium Price is the price where the quantity of a good that buyers want to buy is exactly equal to the quantity that sellers want to sell. At this point, the market is “cleared.”
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Let’s see how the market reaches this price, using a simple example of a new smartphone:
| Price of Smartphone | Quantity Demanded (Buyers want) | Quantity Supplied (Sellers offer) | Market Situation | Price Direction |
| ₹15,000 | 500 units | 1,500 units | Surplus (Supply > Demand) | Price will go Down 🔽 |
| ₹10,000 | 1,000 units | 1,000 units | Equilibrium (Demand = Supply) | Price is Stable ⏸️ |
| ₹7,000 | 1,800 units | 400 units | Shortage (Demand > Supply) | Price will go Up 🔼 |
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Market Situations
- Surplus: When the price is too high, sellers want to sell more than buyers want to buy. To clear the extra stock, sellers will be forced to lower their prices.
- Shortage: When the price is too low, buyers want to buy more than sellers are offering. This high demand allows sellers to increase their prices.
In essence, the constant interaction between buyers and sellers, driven by the forces of supply and demand, is what determines the price of almost everything you buy in a market.