Supply and demand is perhaps one of the most fundamental concepts of economics.

These are
the economic model of price determination in a market. Demand shows how much of a
product consumers are willing to purchase at different price points during a certain time
period. The relationship between price and quantity demanded is known as the demand
relationship. A supply schedule shows the amount of product that suppliers are willing and
able to produce and make available to the market, at specific price points, during a certain
time period. It represents how much the market can offer. The correlation between price and
how much of a good or service is supplied to the market is known as the supply relationship.
Price, therefore, is a reflection of supply and demand. in a competitive market, the unit price
for a particular good will vary until it settles at a point where the quantity demanded by
consumers (at current price) will equal the quantity supplied by producers (at current price),
resulting in an economic equilibrium of price and quantity. Markets are in constant flux as
demands and supplies are subjected to varying driving forces and influences. These shifts
play a critical role in altering market equilibrium price points and volumes for products and
services, requiring constant vigilance and adaptation by providers and consumers.
Equilibrium when demand equals to supply:
The table shows the change in demand and supply of the commodity as per the price:
Price (Rs.)
80
60
40
20
10
Price (Rs.)
10
20
40
60
80

Demand(per week)
3
5
7
9
11
supply(per week)
3
5
7
9
11

As can be seen from the table, as price falls, the corresponding quantity demanded tends to
increase. Since price is an obstacle, the higher the price of a product, the less it is demanded.
When the price is reduced, demand increases. At Rs. 10 per kg , customers are willing to buy
11 kg of tomatoes and at Rs. 80,they are buying only 3 kg of tomatoes per week So, there is
an "inverse" relationship between price and quantity demanded and has a downward slopping
line as shown below in graph. At a low price of Rs. 10 per kg, suppliers are willing to provide
only 3 kg per consumer per week. If consumers are willing to pay Rs. 80 per kg, suppliers
will provide 11 kg per week. As price rises, the quantity supplied rises as well. As price falls,
so does supply. There is a "direct" relationship, and the supply curve has an upward slope.
Equilibrium is the point where the quantity demanded equals the quantity supplied. This
means that there's no surplus of goods and no shortage of goods. Equilibrium price and
quantity are determined by the intersection of supply and demand. Considering the example
taken, the market equilibrium price is Rs. 40, with a supply of 7 kg per consumer per week,
as shown in figure below.
Market equilibrium explains movement along the supply and demand curves. However, it
doesn't explain changes in total demand and total supply.

Demand 1

supply 1

12

12

10

10

Demand 1

0
0 20 40 60 80 100

supply 1

0 20 40 60 80 100

12
10
8
Demand 1

supply 1

4
2
0
0

10

20

30

40

50

60

70

80

90

Supply constant and demand shifts:

If consumers are faced with an extreme change in the price of tomatos, their pattern of
demand changes. They start choosing the most efficient way by reducing their demand and
using other cheap resources. The effect is a major change in total demand and a major shift in
the demand curve. The new demand is as shown in table below:

Price
80
60
40
20
10

Demand 1
3
5
7
9
11

Demand 2
2
4
6
8
10

Supply
11
9
7
5
3

The graph shows that at each price point, the total demand is less, and the demand curve
shifts.

90
80
70
60
50
40
30
20
10
0

demand 1
demand 2
supply

10

12

In this graph, supply is constant, demand decreases. As the new demand curve (Demand 2)
has shown, the new curve is located on the left hand side of the original demand curve as
demand decreases. When demand increases, the new curve shifts to right. The new curve
intersects the original supply curve at a new point. At this point, the equilibrium price (market
price) is lower at Rs. 35 and equilibrium quantity is also lower.
The factors causing the demand shift are:
Consumer income, consumer preference, price and availability of substitute goods,
population.
Demand constant and shift in supply:
The same type of shift can occur with supply. If the price of the tomatoes increases due to
various reasons like drought conditions, less availability of commodities, rise in
transportation prices, strikes etc. the supply curve
can move. The result is that for the same price, the quantity supplied will be either higher or
lower than the current supply curve. The new supply is as shown in table below:
Price
80
60
40
20
10

Supply 1
11
9
7
5
3

Supply 2
10
8
6
4
2

90
80
70
60
50
40
30
20
10
0

Demand
3
5
7
9
11

11 9 7 5 3
Supply 2
Demand

10

12

This graph shows the supply shift with respect to price with demand constant. This supply
shift shows the higher equilibrium cost at Rs. 45 with lower quantity supplied at 6.5 kg per
week. When supply decreases, the supply curve shifts to the left. When supply increases, the
supply curve shifts to the right.
These shifts in supply curve can be due to various reasons:
Higher production cost, drought conditions causing loss of the crops, strikes, changing govt
norms, improved technology.