Difference Between Demand and Supply

In this post you will come to know about the two vital forces of an economy i.e., demand and supply.Firstly one should know what is demand and supply.When we talk about demand ,it represents the customer desire for a particular product and which is backed by ability and willingness to buy the product. The quantity of the commodity being demanded at a particular price, i.e. the equilibrium between quantity demanded and price, is demand for a particular product.Demand curve is an indicator of inverse relationship between price and quantity demand.Now what is supply when we talk of supply it is product and service offered by the producers at a particular price to the customers.The quantity of the product is supplied at a particular price i.e. the equilibrium between quantity supplied and price is known as the supply of that commodity or service. It represents the firm.Supply curve represents direct relationship between price and quantity supplied.

Differences

Basis	Demand	Supply
Definition	Demand is the quantity of a commodity or a service that consumer are willing and able to buy at various prices over a given period of time. It refers to a consumer's desire and willingness to pay a price for a specific good or service.	Supply is the amount of a product producers are willing and able to produce with available resource and sell it at certain price.
Curve	Demand curve is downward sloping.	Supply curve is upward sloping.
Relationship with price	With an increase in price the demand decreases and vice versa i.e., there exists indirect relationship.	Supply increases along with the increase in price. So there is a direct relationship.
Factors	Product own price, price of  complementary goods, price of related goods, personal disposable income, tastes or preferences and consumer expectations about change in  future prices and income.	Product own price, price of related goods, technology used, price of inputs, expectations, number of suppliers,means of transportation and communication,taxationpolicy and government policies and regulations
Representation	Demand represent the consumer.	Supply represent the firm.
Function	QD = f(P, Prg, Y) Where, Qd = quantity demanded, P   =  price of the good, Prg=price of  related good Y = income.	QS= f(P, Prg, S) Where, Qs = Quantity Supplied P   = price of the good, Prg= price of related good  S   =number of producers.
What does Law states	The law of demand states that keeping all other factors as constant, the rise in the price of a good will lead to decrease in the demand and vice versa.	The law of supply states that the higher the price the higher   the quantity supplied. This is because a higher price allows the supplier to get increased revenues, giving him capital to produce more.

Supply and demand are two sides of a same coin and both are interlinked. Increase or decrease in either one directly affects the other. There are certain aspect of  supply and demand model and the model works accordingly. They are: if demand increases and supply remains unchanged,it leads to excess demand and competition among buyers which raises the price then it leads to higher equilibrium price and higher quantity, if demand decreases and supply remains unchanged, then it create excess supply at old equilibrium price this lead to competition among sellers which reduces the price.Decrease in price leads to rise in demand and fall in supply but as supply is constant it leads to lower equilibrium price and lower quantity demanded, if demand remains unchanged and supply increases, then it leads to lower equilibrium price and higher quantity and if demand remains unchanged and supply decreases, then it leads to higher equilibrium price and lower quantity.

Look at it in this way, if a producer of chocolate produces 10 chocolate to sell and the people who wishes to buy the chocolate are 20. This will cause shortage of chocolate, allowing the producers to increase the price of the chocolate. But as the price rises, fewer people will opt to buy the chocolate, which will decrease the number of buyers for the chocolate. Now taking the same example into consideration, let’s change the number of the buyers to 5, there are 10 chocolate which were produced and only 5 buyers for the chocolate, the seller will reduce the price of the remaining chocolate in order to try and convince people to buy it.

Movement and Shift in Demand Curve

In this post you will come to know about Movement and Shift in Demand Curve and what are the causes of movement and shift.When quantity demanded of a commodity changes due to a change in its own price, keeping other factors constant, it is known as change in quantity demanded. It is graphically expressed as a movement along the same demand curve.There can be either a downward movement (Expansion in demand) or an upward movement (Contraction in demand) along the same demand curve. 

Let us understand the movement along the demand curve.

1) Expansion in Demand is shown by downward movement from A to B. Quantity Demanded rises from OQ to OQ1 due to fall in price from OP to OP1.

2) Contraction in Demand is shown by an upward movement from A to C. Quantity demanded falls from OQ to OQ2 due to rise in price from OP to OP2.         OQ quantity is demanded at a price of OP. Change in price leads to an upward or downward movement along the same demand curve.

Upward Movement:When price rises to OP2, quantity demanded falls to OQ2 (known as  contraction in demand) leading to an upward movement from A to C along the same demand curve DD.

Downward Movement:On the other hand, fall in price from OP to OP1 leads to an increase in quantity demanded from OQ to OQ1 (known as expansion in demand), resulting in a downward movement from A to B along the same demand curve DD.

Let us now understand the meaning of Expansion and Contraction in demand.

Expansion in Demand:

Expansion in demand refers to a rise in the quantity demanded due to a fall in the price of commodity, other factors remaining constant.

 1) It leads to a downward movement along the same demand curve.                                        
2) It is also known as ‘Extension in Demand’ or ‘Increase in Quantity Demanded’. As seen in the given schedule and diagram, the quantity demanded rises from 100 units to 150 units with a fall in the price from Rs. 20 to Rs. 15, resulting in a downward movement from A to B along the same demand curve DD.

Price (Rs)	Demand(Units)
20	100
15	150

Contraction in Demand:

Contraction in demand refers to a fall in the quantity demanded due to a rise in the price of commodity, other factors remaining constant.

1) It leads to an upward movement along the same demand curve.  

2)It is also known as ‘Decrease in Quantity Demanded’. As seen in the given schedule and diagram, the quantity demanded falls from 100 units to 70 units with a rise in the price from Rs. 20 to Rs. 25, resulting in an upward movement from A to B along the same demand curve DD.

Price (Rs)	Demand(Units)
20	100
25	70

Shift in Demand Curve (Change in Demand)

Demand curve is drawn to show the relationship between price and quantity demanded of a commodity, assuming all other factors being constant. However, other factors are bound to change sooner or later. A change in one of ‘other factors’ shifts the demand curve. For example, suppose income of a consumer increases. Now, the consumer may increase the demand for the product, even though the price has not changed. Such increase in demand of any product, whose price has not changed, cannot be represented by the original demand curve. It will shift the demand curve.

When the demand of a commodity changes due to change in any factor other than the own price of the commodity, it is known as change in demand. It is expressed as a shift in the demand curve.

Various Reasons for Shift in Demand Curve:

(i) Change in price of substitute goods,               

(ii) Change in price of complementary goods,

(iii) Change in income of consumers,

(iv) Change in tastes and preferences,

(v) Expectation of change in price in future,

(vi) Change in population,

(vii) Change in distribution of income,

(viii) Change in season and weather.

Let us understand the concept of shift in demand curve with the help of diagram.

1.) Increase in Demand is shown by rightward shift in demand curve from DD to D1D1. Demand rises from OQ to OQ1 due to favourable change in other factors at the same price OP

2.) Decrease in Demand is shown by leftward shift in demand curve from DD to D2D2. Demand falls from OQ to OQ2 due to unfavourable change in other factors at the same price OP

Demand for the commodity is OQ at a price of OP. Change in other factors leads to a rightward or leftward shift in the demand curve:

1. Rightward Shift:

When demand rises from OQ to OQ1 (known as increase in demand) at the same price of OP, it leads to a rightward shift in demand curve from DD to D1D1.

2. Leftward Shift:

On the other hand, fall in demand from OQ to OQ2 (known as decrease in demand) at the same price of OP, leads to a leftward shift in demand curve from DD to D2D2

Let us now understand the meaning of Increase and Decrease in demand.

Increase in Demand:

Increase in Demand refers to a rise in the demand of a commodity caused due to any factor other than the own price of the commodity. In this case, demand rises at the same price or demand remains same even at higher price. For example, suppose a research reveals that people who regularly eat green vegetables live longer. This will raise the demand for green vegetables even at the same price and it will shift the demand curve of vegetables towards right.

Increase in demand leads to a rightward shift in the demand curve.

Price (Rs)	Demand(Units)
20	100
20	150

As seen in the given schedule and diagram, demand rises from 100 units to 150 units at the same price of Rs. 20, resulting in a rightward shift in the demand curve from DD to D1D1.

Decrease in Demand:

Decrease in Demand refers to a fall in the demand of a commodity caused due to any factor other than the own price of the commodity. In this case, demand falls at the same price or demand remains same even at lower price. It leads to a leftward shift in the demand curve.

As seen in given schedule and diagram, demand falls from 100 units to 70 units at same price of Rs. 20, resulting in a leftward shift in the demand curve from DD to D₁D₁.

Price (Rs)	Demand(Units)
20	100
20	70

In this post you will come to know about "The law of demand".It states that price and quantity demand of any good and service are inversely related to each other keeping other factors constant (cetris peribus). When the price of a product increases, the demand for the given product will fall.

 Assumptions

(i) There is no change in the tastes and preferences of the consumer.

(ii) The income of the consumer remains constant.

(iii) There is no change in customs.

(iv) The commodity to be used should not confer distinction on the consumer.

(v) There should not be any substitutes of the commodity.

(vi) There should not be any change in the prices of other products.

(vii) There should not be any possibility of change in the price of the product being used.

(viii)There should not be any change in the quality of the product.

(ix) The habits of the consumers should remain unchanged. Given these conditions, the law of demand operates. If there is change even in one of these conditions, it will stop operating and

(x) There is no expectation of change in price in the future.

Exceptions to the Law of Demand

In certain cases, the demand curve slopes up from left to right, i.e., it has a positive slope. Under certain circumstances, consumers buy more when the price of a commodity rises, and less when price falls. Many causes are attributed to an upward sloping demand curve.

(i) War:

If shortage is feared in anticipation of war, people may start buying for building stocks or for hoarding even when the price rises.

(ii) Depression:

During a depression, the prices of commodities are very low and the demand for them is also less. This is because of the lack of purchasing power with consumers.

(iii) Giffen Goods:

A ‘Giffen good’ is a special variety of inferior good. Sir Robert Giffen of Scotland observed in the 19th century (1840s) that poor people spent the major portion of their income on a staple item, viz., potato. If the price of this good rises they will become so poor that they will be found to spend less on other items and buy more potatoes in order to get a minimum diet and keep themselves alive.

For such goods, the demand curve will be upward sloping.

(iv) Demonstration Effect:

If consumers are affected by the principle of conspicuous consumption or demonstration effect, they will like to buy more of those commodities which confer distinction on the possessor, when their prices rise. On the other hand, with the fall in the prices of such articles, their demand falls, as is the case with diamonds.

(v) Ignorance Effect:

Consumers buy more at a higher price under the influence of the “ignorance effect”, where a commodity may be mistaken for some other commodity, due to deceptive packing, label, etc.

(vi) Speculation:

 Speculation is one of the important exceptions to the downward sloping demand curve. According to him, the law of demand does not apply to the demand in a campaign between groups of speculators. When a group unloads a great quantity of a thing on to the market, the price falls and the other group begins buying it. When it has raised the price of the thing, it arranges to sell a great deal quietly. Thus when price rises, demand also increases.

(vii) Necessities of Life:

Normally, the law of demand does not apply on necessities of life such as food, cloth,medicine etc. Even the price of these goods increases, the consumer does not reduce their demand. Rather, he purchases them even the prices of these goods increase often by reducing the demand for comfortable goods. This is also a reason that the demand curve slopes upwards to the right.

Snob Appeal or Veblen Good:

People sometimes buy certain commodities like diamonds at high prices not due to their intrinsic worth but for a different reason. The basic object is to display their riches to the other members of the community to which they themselves belong.It act as a status symbol good.This is known as ‘snob appeal’, which induces people to purchase items of conspicuous consumption. Such a commodity is also known as Veblen good (named after the economist Thorstein Veblen) whose demand rises when its price rises.This is a genuine exception to the law of demand. The demand curve for such an item will be upward sloping.Thus if, the price of diamond falls, people will buy less of it. In a word, purchasers value diamonds and other costly items because of their prices and because of the psychic satisfaction that they derive from it.

Highly Essential Good:

Finally, in case of certain highly essential items such as life- saving drugs, people buy a fixed quantity at all possible price. The requirement of medicine will lead the consumer to buy it at higher price no by how much price it get increased.