Concept of demand and supply

Concept of Demand and supply
Demand
By demand we get to know the desire to acquire a product which is backed by purchasing power.

When price of a particular product increases the demand of that product will decrease and other things remaining constant, this is known as law of demand

He may think of various factors before buying a product, we also know as determinants of  demand are as follows:

• Price - Before buying a product a customer or consumer will always look at price of the product, that he can afford it or not.
• Substitutes - the customer would look for any other substitute goods which available so that costumer can get good product at reasonable price.
• Income - another major factor is income when a customer or consumer  spends according to his level of income like having high income can lead to high spending. 
• Taste and preference - sometimes price and substitute product is not considered, brand plays an important role here. Eg- a person having maggi will only choose maggi even it has substitute because he's likes the taste of maggi.

When we talk about the relationship between price and demand they share an inverse relations  and therefore the curve is downward sloping.

Now the question is how to measure the effect of its determinants on demand?
Answer to this question is elasticity of demand that means how much demand changes when there is a change in one of its determinants.

There are three basic elasticity of demand as follows:

• Price elasticity
• Income elasticity
• Cross elasticity

Price elasticity: the degree of responsiveness in demand due to change in its price that means how much demands get affected if its price changes.

Income elasticity: how much demand changes due to change in income.

Cross elasticity: it happens when there is substitute product, basically when price of one product leads to change in demand of another product like if price of product1 changes how much the demand of product2 will be affected.

For example:-  I went to dmart  to buy some biscuits but i got confused there were variety of biscuits with different prices since i was having some limited cash, while buying hide n seek i noticed that the price was increased by Rs10 so instead of three I bought two.
When the price was increased by 10 rs i purchased one less unit this is the effect of price elasticity but if my income would have increased i could have purchased more of hide n seek  the change in the quantity purchased, this can be income elasticity but if i would have shifted to its substitute for example good day chocolate cookies with increase in price of hide n seek then the decrease in the quantity purchased will be cross elasticity of demand

Now it's time to go on the other side of the fence that is supply like demand there is no particular law but whenever price of a particular product increases the supply of that product also increases this is known as law of supply

Supply also has determinants like demand as follows:

•  Cost of production: the cost of production plays an important role because if the cost of production rises the profitability of the producer will decrease and there is a risk he might be in loss.
•  Profitability of the product: the profitability is the key motivation to any supplier in producing a particular product.
•  Profitability of the alternative product: sometimes the supplier also get attracted to the substitute by looking at there profit margin, they may shift to it.

For example:- In Orient, they basically manufacture fans when the price of fans rises they would be willing to supply more so the supply of usha ceiling fan would increase but when there is rise in the cost of production there profit margin will be reduced so profitability of a product is also a major factor then they might think to shift to another product in which would have more profit margin.