Basic Concepts of Market Economy

Concept, Feature, Advantage and Disadvantage of Market Economy. Demand and Supply. Law of Demand, Demand Schedule, Demand Curve, Causes of Downward Slopping Demand Curve. Derivation of Individual Supply Curve, Market Supply Curve, Change in Supply, Factor Causing Shift in Supply Curve, Interaction between Demand and Supply

Notes

Market Economy and Demand

An economic system in which all economic activities like production, distribution, extent, etc are organized and carried out by private sectors and guided by profit motive through market forces demand and supply is called a market economy.

Types of Demand

The quantity of goods and services that the consumers are willing and able to purchase from the market at a different price and at a different time period is called demand. Generally, wants and desire of a consumer can also be called demand. Thus, the demand is effective desire only when the given condition satisfies.

Law of Demand and Derivation

The law of demand is one of the most important applied theories used in micro economics. It is pronounced by Neo Classical economist, Alfred Marshall in his book "Principle of Economics". The law of demand is based on the functional relationship between price and quantity demand. There is inverse relationship between price and quantity demand.

Change In Demand and Reason Behind Downward Slopping Demand Curve

Demand for goods and services changes over a period of time. There is clear distinction between a 'change in demand' and 'change in quantity demand'. A change in demand is involved when the entire demand curve shift. An increase in demand shifts the curve to the right and the decrease in demand shifts the curve to the left.

Supply and Law of Supply

The quantity of goods and services that the suppliers are willing and able to sell in the market at fixed price in a unit of time is known as supply. One of the major objectives of the business people is to earn a profit, so they supply more goods and services at a higher price and vice versa.

Derivation of Supply and Change in Supply

The quantity of goods supplied by an individual to the market to sell it at a different price at a certain time period is known as individual supply. And aggregate of goods supplied to such individuals is called market supply.

Factors causing Shift in Supply and Interaction between Demand Supply

This note contains the factors causing the shifts in supply curve and interaction between demand and supply.