 Welcome to the session of Demand and the Supply Learning outcome of the session. Before proceeding, let me ask you one question. What is a microeconomics? You can pause the video, think about the question, write down your answer in your notebook and then return to the video to see the answer. Let me give you the answer. The macroeconomics studies the economics by the phenomenon such as inflation, price levels, rate of economic growth, the national income, gross domestic product and the changes in the unemployment. Let us see what is a demand? The demand is one of the most critical in the economic decision variable. The demand reflects the size and the pattern of the market. The business activities is always a market determined. That's why the demand is very important. The manufacturers invest in a given particular company considering the size of the market and the market totally works on the demand. The demand for the output and the input, the demand for the firm and the industry, the demand for the consumer, talkist and similar other demand concepts become therefore relevant for the managerial decision analysis. Even if the firm pursues the objective alternatives to profit maximization, the demand concept plays an important role in that. Significance of the demand. The demand is one of the crucial requirements for the functioning of any business enterprises and for its survival and the growth. The demand analysis is very important. The information on the size and the type of the demand help the management in order to make a planning for the requirements of the men, material, machine, money and what the customer wants. For example, if the demand for the product is subject to the temporary business recession, the firm may plan to pile up the stock of the unsold products. So if the demand for the product shows strength toward the substantial and sustained increase in the long run, the firm may plan to install the additional plants and the equipment to meet the demands on the permanent basis. Demand for the product is falling, but while its rival sale is increasing, the firm need to plan itself tactics. The firm need to undertake some sales promotions activity like advertisement. So the demand what you can tell in short what we can say about the demand. The demand for the product can be described as a desire to acquire that product, willingness to pay for that product and the ability to pay for that product. All these three must be checked to identify and establish the demand. For example, let us consider a poor man's desire to stay in a five-store hotel room and his willingness to pay for the rent of that room is not called as a demand because of the lack of the necessary purchasing power. So it can be called as his wishful thinking. Similar to the measure's desire for an ability to pay for the car is not the demand because he does not have sufficient necessary willingness to pay for a car. Let us consider the law of the demand. The assumption of profit maximizing behavior assumes that the owners and the managers know the demand for the firm's goods or the services. The demand function asserts that there is a measurable relationship between the price that company charges for its product and the number of units that the buyer are willing and able to purchase during the specific time period. Economic refer this behavior relationship as a law of the demand which is sometime called as a fundamental law of the economics. Laws state that the quantity demanded for the goods or the service is inversely related to the selling price under the condition that all the other determinants remain unchanging. So the term law of the demand is actually the misnomer. The law predicts events with the certain conditions and by the contrast the theory is probabilistic statements of the cause and the effect. The law of the demand is a theory as an invariably case when the human nature is involved. Symbolically the law of the demand can be summarized as the Qd is equal to function of the p and the d of Qd by dp should be less than 0. That means the equation A states that the Qd that is a quantity demanded for the good is a function which is related to the selling price. Whereas the B states that the quantity demanded and the prices are inversely related to each other. The relationship is explained as shown in the figure. The downward slope of the demand curve shows that there is an inverse relationship between the quantity demanded for the good or the services and its selling price. The validity of the law of the demand may be argued on the basis of the common sense and the simple observation. At the more sophisticated level, the validity of the law of the demand may be argued on the basis of diminishing marginal utility and the income and also the substitution effect. Let us take an example. Suppose that you want to buy a mango at the rate of 100 rupees per dozen. You will buy a 6 dozens of the mangoes. If the price of the mangoes increases by 200 rupees then how much you will buy? Definitely you will buy the less quantity of the mangoes. So what kind of the relationship in between the price and the quantity which is demanded? So there is an inverse relationship. The law of the demand states that the higher the price, the lower will be the demand and also lower the price, higher will be the demand. The law is stated primarily in terms of the price and the quantity relationship. The quantity of the demand is inversely related to its price. Here we consider only the two factors, the price and the quantity which is demanded. All other factors which are determined are assumed to be constant. So let us see the law of the supply. As per the definition, the law of the supply asserts that the quantity which is supplied of the good or the service is directly proportional to the selling price under the condition that all other determinants are remaining constant. Production and the cost under certain conditions include short run production, the hypothesis of the profit maximization and the perfect competition in the resource markets. The law of the supply is based on the law of diminishing marginal returns which is sometime called as law of the diminishing marginal product. In fact, the supply curve of the individual firm is simply the portion of the firm's marginal cost curve which at some point rises in the response to the law of diminishing returns. The law of diminishing return is not an economic relationship, but the technological relationship that empirically consistent. In fact, the law of diminishing marginal returns may be the only true law in the economics. The law of diminishing marginal returns in fact, make the law of supply stronger relationship than the law of the demand. With that case, consider the following hypothetical market supply function. Symbolically law of the supply can be summarized as Q S should be equal to G of P. So, D Q S by D P should be greater than 0. So, the equation A states that the quantity supplied that is Q S of the goods or the service is functionally related to its price. That is the quantity supplied is the function of the price whereas, in case of the equation B it shows that the quantity supplied for the product or the service are directly related to the price. That means they are directly proportional to each other. The relationship is explained in the figure. The upward sloping supply curve indicates that there is a positive relationship between the quantity demanded of the good or the services and its selling price. The market supply curve shows various amounts of the goods or the services that profit maximizing firms are willing to supply at each price. The market supply curve establishes the relationship between the price and the quantity supplied. The changes in the price and the quantity supplied of the good or the services are represented diagrammatically as a movement along the supply curve. The chart shows the law of the supply using the supply curve which will be the upward sloping. The point A, the point B and point C are on the supply curve. Each point on the curve reflect the direct correlation between the quantity supplied and the price. So, at point A the quantity supplied will be q 1 at the price p 1. A supply curve is upward sloping because over the time the suppliers can choose how much of their goods to produce and later bring to the market. At any given point in the curve however, the supply that sellers bring to the market is fixed and the seller simply faces the decision to either sell or withhold their stock from the sale. The consumer demand set the price and a seller can charge only what can market will bear. If the consumer demand rises over the time, the prices will rise and the suppliers can choose devoted new resources for the production means new suppliers can enter into the market which increases the quantity which is supplied into the market. Thus, the demand ultimately set the price in the competitive market and the supplier responds to that price they can expect to receive sets of quantity which is supplied. The law of the supply is one of the most fundamental concept in the economics. It works with the law of demand to explain how the market economies allocate the resources and determine the price of the goods and the services into the market. These are the references for the session. Thank you.