Demand – Pvwn`v

Demand in economics refers to the quantity of a good or service that consumers are willing and able to purchase at various prices, over
a given period of time. It is influenced by factors such as price, income levels, preferences, and the availability of substitute goods.
In simple terms, demand shows how much people want something and how much they are willing to pay for it.
The three main conditions of demand are:
Desire or Want: Consumers must have the desire or want for a good or service. Without this, demand doesn't exist, as no one
would be interested in purchasing the product or service.
Ability to Pay: Consumers must have the financial means to purchase the good or service. Even if they want something, if they
don't have the income or resources to pay for it, they cannot demand it.
Willingness to Pay: Consumers must be willing to spend their money on the good or service. This means they must value the
item enough to part with their money in exchange for it.
These conditions must be met for demand to exist for a particular product or service.
 Law of Demand – Pvwn`v wewa

The Law of Demand states that, all else being equal, as the price of a good or service increases, the quantity demanded decreases,
and as the price decreases, the quantity demanded increases.
In simpler terms, when something becomes more expensive, people generally buy less of it, and when it becomes cheaper, they tend to
buy more of it.
This inverse relationship between price and demand holds true for most goods and services, assuming other factors like consumer
income, preferences, and the prices of related goods remain constant. This is often represented visually by a downward-sloping demand
curve on a graph, where price is on the vertical axis and quantity demanded is on the horizontal axis.
 Demand Schedule – Pvwn`v m~wP

A demand schedule is a table that shows the relationship between the price of a good or service and the quantity demanded by
consumers at each price level, during a specific period of time. It lists different prices along with the corresponding quantities that
consumers are willing to buy.

Price of Rice (tk) Quantity Demanded (kg)

90 100
80 150
70 200
60 250
50 300

In this example,
• At a price of 90 BDT, consumers are willing to buy 100 kg
• At a price of 50 BDT, consumers are willing to buy 300 kg
As price decreases, the quantity demanded increases, which reflects the Law of Demand. The demand schedule provides a clear way
to understand how price affects consumer purchasing behavior.
 Demand Curve – Pvwn`v †iLv

A demand curve is a graphical representation of the relationship between the price of a good or service and the quantity demanded by
consumers. It typically slopes downward from left to right, reflecting the Law of Demand, which states that, all else being equal, as
the price of a good increases, the quantity demanded decreases, and as the price decreases, the quantity demanded increases.
Key Features of a Demand Curve
• Vertical Axis (Price): Represents the price of the good or service.
• Horizontal Axis (Quantity Demanded): Represents the quantity of the good or service that consumers are willing to buy.
Example
If you plot different price points against the quantity demanded (as you would in a demand schedule), the demand curve would show
the downward slope indicating that as prices decrease, consumers are willing to purchase more of the product.
Graphical Representation
• At higher prices, the quantity demanded is low (farther up on the price axis).
• At lower prices, the quantity demanded is high (farther to the right on the quantity axis).
This curve helps to visualize consumer behavior and how demand changes with price fluctuations in the market.
Demand Curve – Pvwn`v †iLv
 Supply – †hvMvb

Supply in economics refers to the quantity of a good or service that producers are willing and able to offer for sale at different prices,
during a specific period of time. It shows how much of a product producers are willing to produce and sell at various price levels.
Note that here we are considering a good, a certain time, and a particular price. Thus, different quantities of a good that a producer or
seller is willing to sell at different prices are called supply in the economy.
 Law of Supply – †hvMvb wewa

The Law of Supply states that, all else being equal, the quantity supplied of a good or service increases as its price increases, and
the quantity supplied decreases as its price decreases. In other words, producers are willing to offer more of a good or service at
higher prices because they can earn higher profits, and less at lower prices because the potential for profit is reduced.
 Supply Schedule – †hvMvb m~wP

In economics, a supply schedule is a table or chart that shows the quantity of a good or service that producers are willing to supply at
different prices over a given period of time. It illustrates the relationship between the price of a product and the quantity supplied,
which is generally expected to be positive—meaning that as the price of a good increases, producers are willing to supply more of it.

Price of Rice (tk) Quantity Supplied (kg)

90 300
80 250
70 200
60 150
50 100

In this example, as the price of rice increases from 50 BDT to 90 BDT, the quantity of rice that producers are willing to supply
increases from 100 to 300 kg.
As price decreases, the quantity supplied increases, which reflects the Law of Supply. The supply schedule provides a clear way to
understand how price affects producer or seller producing or selling behavior.
 Supply Curve – †hvMvb †iLv

A supply curve in economics is a graphical representation showing the relationship between the price of a good or service and the
quantity that producers are willing to supply at different prices. Typically, the supply curve slopes upward from left to right, reflecting
the law of supply, which states that as the price increases, the quantity supplied also increases, since producers are willing to produce
more when they can earn higher profits.
Key Features of a Supply Curve
• Price on the Vertical Axis: The price of the good or service is plotted on the vertical (y) axis.
• Quantity Supplied on the Horizontal Axis: The quantity of the good or service that producers are willing to sell is plotted on
the horizontal (x) axis.
• Upward Sloping Curve: Typically, the supply curve slopes upwards from left to right. This upward slope reflects the law of
supply, which states that as the price of a good increases, the quantity supplied by producers also increases. Producers are willing
to supply more of the good when they can sell it at higher prices, as it becomes more profitable.
Example
Imagine a market for rice. The supply schedule shows the relationship between the price of rice and the quantity supplied by producers.
Graphical Representation
• Plot the price on the y-axis.
• Plot the quantity supplied on the x-axis.
• Connect the points: The points plotted on the graph would show an upward-sloping line, indicating that as the price increases,
the quantity supplied increases as well.
Supply Curve – †hvMvb †iLv
 Equilibrium/ Market Equilibrium – evRvi fvimvg¨

Market Equilibrium is a key concept in economics that refers to a situation where the quantity demanded of a good or service
equals the quantity supplied at a specific price level. At this point, there is neither a shortage nor a surplus of the good or service in
the market. In other words, the market clearing price is reached, where the forces of demand and supply are in balance.
Mathematically, equilibrium is achieved when
Quantity Demanded = Quantity Supplied
At this price, both consumers are willing to buy the good at the given price, and producers are willing to sell at that price. If the price is
higher or lower than the equilibrium price, either a surplus or a shortage will occur, leading to market adjustments.
Key Features
• Equilibrium Price (also called the market-clearing price): The price at which the quantity demanded equals the quantity
supplied.
• Equilibrium Quantity: The amount of goods or services bought and sold at the equilibrium price.
At this point, there is no pressure for the price to change because the market is in balance.
Example
If the price of a product is too high, there will be more supply than demand (a surplus), and producers may lower the price. If the price
is too low, there will be more demand than supply (a shortage or deficit), and producers may raise the price. The market equilibrium
occurs when these adjustments stop and the supply and demand curves intersect.
In short, market equilibrium is where supply equals demand, and the market is stable without excesses or shortages.
 Equilibrium/ Market Equilibrium – evRvi fvimvg¨

How Market Equilibrium Works

• When the price is too high: At higher prices, suppliers are willing to offer more goods, but consumers will demand less,
creating a surplus of goods in the market. To clear this surplus, sellers will lower the price until the market reaches equilibrium.
• When the price is too low: At lower prices, consumers want to buy more, but suppliers are unwilling to produce as much due to
lower potential profits, creating a shortage of goods. Sellers will raise the price to bring the market back to equilibrium.
Examples
1. Rice Market
Rice is a staple food in Bangladesh, and its market equilibrium is heavily influenced by seasonal changes, government policies, and
international trade.
• Scenario 1: Price Above Equilibrium (Surplus)
Suppose the government sets the price of rice too high, say 90 BDT per kg, thinking it will help farmers. However, at this high
price, consumers are unwilling to buy large quantities, leading to a surplus of rice in the market. Producers may have more rice
than consumers are willing to purchase at that price. To clear the surplus, the price of rice will eventually fall, and the market will
return to equilibrium.
• Scenario 2: Price Below Equilibrium (Shortage or Deficit)
If the government subsidizes rice and sets a price of 50 BDT per kg, it may lead to a shortage, as consumers want to buy more
rice at this low price, but producers are not willing to supply enough because of lower profits. As a result, there may not be
enough rice for all consumers. To resolve the shortage, the price may increase, eventually reaching the equilibrium price where
the quantity demanded equals the quantity supplied.
 Equilibrium/ Market Equilibrium – evRvi fvimvg¨

Let’s assume the following demand and supply schedules for rice in Bangladesh:

Price (BDT per kg) Quantity Demanded (kg) Quantity Supplied (kg) Surplus or Shortage
90 100 300 Surplus
80 150 250 Surplus
70 200 200 Equilibrium
60 250 150 Shortage
50 300 100 Shortage

In this example, at a price of 70 BDT per kg, the quantity demanded (200 kg) and quantity supplied (200 kg) are equal. At this price,
demand and supply are in balance.
At 80 BDT per kg, the quantity demanded (150 kg) and the quantity supplied (250 kg) no longer match, and there’s a surplus in the
market. The surplus would drive the price down as producers would lower the price to sell the extra rice.
At 60 BDT per kg, the quantity demanded (250 kg) and the quantity supplied (150 kg) no longer match, and there’s a shortage in
the market. The shortage would drive the price up as producers would raise the price to reach equilibrium.
 Equilibrium/ Market Equilibrium – evRvi fvimvg¨

2. Vegetable Market
Vegetable prices in Bangladesh can fluctuate due to weather conditions, crop failures, and seasonal demand.
• Scenario 1: Surplus of Vegetables
During the monsoon season, vegetables like tomatoes, potatoes, and onions may experience overproduction due to favorable
growing conditions. Farmers may flood the market with produce, and if the price remains high, consumers may reduce their
purchases. This creates a surplus, where the quantity supplied exceeds the quantity demanded. To balance the market, farmers or
sellers might lower the price, clearing the surplus and reaching equilibrium.
• Scenario 2: Shortage of Vegetables
During periods of flooding or drought, crop yields may fall drastically, causing a shortage of vegetables in markets. Consumers
will demand more at higher prices, but farmers are unable to supply enough due to crop failure. As a result, vegetable prices will
rise, bringing supply and demand back into balance once the shortage is cleared.
 Equilibrium/ Market Equilibrium – evRvi fvimvg¨

Graphical Representation of Market Equilibrium

• On a graph, the demand curve slopes downwards from left to right, while the supply curve slopes upwards.
• The equilibrium point is where the two curves intersect, representing the equilibrium price (P*) and equilibrium quantity (Q*).
For example,
• Price (P) on the vertical axis (Y-axis).
• Quantity (Q) on the horizontal axis (X-axis).
• The demand curve shows how much consumers are willing to buy at various prices.
• The supply curve shows how much producers are willing to sell at various prices.
• The point where the supply curve and demand curve intersect is the market equilibrium.
Market equilibrium is a key concept in economics, helping to determine the price and quantity of goods in a market. In Bangladesh, we
see how external factors like government policies, weather conditions, and global prices influence the supply and demand for goods.
Understanding how equilibrium works can help policymakers, businesses, and consumers make better decisions.
For instance, when the government sets minimum prices for rice or vegetables, the resulting price distortions can lead to surpluses or
shortages, affecting overall market efficiency. Similarly, when demand for products like vegetables or rice increases due to changes in
consumer preferences or seasonal factors, the market works to adjust to a new equilibrium.
Equilibrium/ Market Equilibrium – evRvi fvimvg¨
 Elasticity – w¯’wZ¯’vcKZv

Elasticity in economics is a concept that measures how much the quantity demanded or supplied of a good or service changes in
response to a change in one of the factors affecting it, such as price, income, or the price of related goods.
In simple terms, elasticity tells us how sensitive the demand or supply of a product is to changes in key factors.
Types of Elasticity
1. Price Elasticity of Demand (PED)
• What it measures: The responsiveness of the quantity demanded of a good to a change in its price.
• Formula
Percentage change in quantity demanded
PED =
Percentage change in price

• Example: If the price of a product increases and consumers buy much less of it, the demand is elastic. If the price increases and
consumers buy almost the same amount, the demand is inelastic.
 Elasticity – w¯’wZ¯’vcKZv

2. Price Elasticity of Supply (PES)

• What it measures: The responsiveness of the quantity supplied of a good to a change in its price.
• Formula
Percentage change in quantity supplied
PES =
Percentage change in price

• Example: If the price of a product increases and producers are able to quickly supply more of it, the supply is elastic. If they
cannot easily increase production, the supply is inelastic.
3. Income Elasticity of Demand (YED)
• What it measures: How the quantity demanded of a good changes when consumer income changes.
• Formula
Percentage change in quantity demanded
YED =
Percentage change in income
• Example: When consumers' incomes increase, they may demand more luxury goods (positive YED) but less inferior goods like
budget brands (negative YED).
 Elasticity – w¯’wZ¯’vcKZv

4. Cross-Price Elasticity of Demand (XED)

• What it measures: How the quantity demanded of one good changes when the price of another good changes.
• Formula
Percentage change in quantity demanded of Good X
XED =
Percentage change in price of Good Y​

• Example: If the price of coffee rises, the demand for tea may increase if they are substitutes (positive XED). Conversely, if the
price of printers rises, the demand for ink cartridges may fall since they are complements (negative XED).
Important of Elasticity
• Business Pricing: Elasticity helps businesses decide whether to increase or decrease prices. For example, if demand is elastic,
lowering the price may increase total revenue, while if demand is inelastic, raising the price may be more profitable.
• Policy Decisions: Governments use elasticity to predict the effects of taxes or subsidies. For example, taxing inelastic goods (like
cigarettes) won't reduce demand much, whereas taxing elastic goods (like luxury items) may significantly reduce consumption.
• Market Analysis: Understanding elasticity helps economists and businesses forecast how changes in the economy, such as income
fluctuations or price changes, will affect supply, demand, and consumer behavior.
 Elasticity – w¯’wZ¯’vcKZv

The percentage of elasticity in economics is used to quantify the responsiveness of the quantity demanded or supplied to changes in
price, income, or the price of related goods. Specifically, elasticity is calculated using percentage changes in variables. Here’s how it
works:
Formula for Elasticity
Elasticity is typically measured as the percentage change in one variable relative to the percentage change in another variable. The most
common types of elasticity are Price Elasticity of Demand (PED) and Price Elasticity of Supply (PES).
1. Price Elasticity of Demand (PED)
This measures the responsiveness of the quantity demanded of a good to a change in its price.
Percentage change in quantity demanded
Price Elasticity of Demand (PED) =
Percentage change in price
How to calculate the percentage change
The formula for the percentage change in quantity demanded or price is:
New Value - Old Value
Percentage Change = × 100
Old Value
 Elasticity – w¯’wZ¯’vcKZv

For example, if the price of a product increases from 10 BDT to 12 BDT, and the quantity demanded decreases from 100 units to 80
units, the percentage change would be:
12 - 10
Percentage Change in Price = × 100 = 20%
10

80 - 100
Percentage Change in Quantity Demanded = × 100 = -20%
100
Then, the PED would be
-20%
PED = = -1
20%
This means that the demand is unitary elastic, as the absolute value of PED is 1.
 Elasticity – w¯’wZ¯’vcKZv

2. Price Elasticity of Supply (PES)

This measures the responsiveness of the quantity supplied of a good to a change in its price.

Percentage change in quantity supplied

Price Elasticity of Supply (PES) =
Percentage change in price

The calculation for PES follows the same steps as for PED. The percentage change is calculated for quantity supplied and price, then
divided to obtain the elasticity.
 Elasticity – w¯’wZ¯’vcKZv

The general formula for elasticity is

Percentage Change in Quantity​
E=
Percentage Change in Price (or Income, or Price of Related Goods)

This formula can be applied in different contexts based on the type of elasticity being measured.
1. Price Elasticity of Demand (PED):
The Price Elasticity of Demand measures how the quantity demanded of a good changes in response to a change in its price.
• Formula:
%ΔQd
PED =
%ΔP
Where:
• PED = Price Elasticity of Demand
• %ΔQd = Percentage change in quantity demanded
• %ΔP = Percentage change in price
 Elasticity – w¯’wZ¯’vcKZv

Step-by-step calculation
Qd2 - Qd1
× 100
Qd1
PED =
P2 - P1
× 100
P1
Where:
• Qd1 = Initial quantity demanded
• Qd2 = New quantity demanded
• P1 = Initial price
• P2 = New price
 Elasticity – w¯’wZ¯’vcKZv

2. Price Elasticity of Supply (PES)

The Price Elasticity of Supply measures how the quantity supplied of a good changes in response to a change in its price.
Formula:
%ΔQs
PES =
%ΔP

Where:
• PES = Price Elasticity of Supply
• %ΔQs = Percentage change in quantity supplied
• %ΔP = Percentage change in price
 Elasticity – w¯’wZ¯’vcKZv

Calculation of Price Elasticity of Demand (PED)

Let’s say the price of a product increases from 10 BDT to 12 BDT, and the quantity demanded decreases from 100 units to 80 units. We
can calculate the PED as follows:
1. Percentage change in quantity demanded
80 - 100
%ΔQd = × 100 = -20%
100
2. Percentage change in price
12 - 10
%ΔP = × 100 = 20%
10
3. Price Elasticity of Demand
-20%
PED = = -1
20%
This means the demand is unitary elastic because the absolute value of PED is 1. A 20% increase in price results in a 20% decrease in
quantity demanded.
 Elasticity – w¯’wZ¯’vcKZv
Interpretation of Elasticity Values
• Elastic (PED > 1): A price change causes a relatively larger change in quantity demanded or supplied.
• Inelastic (PED < 1): A price change causes a relatively smaller change in quantity demanded or supplied.
• Unitary Elastic (PED = 1): A price change causes an equal percentage change in quantity demanded or supplied.
• Perfectly Elastic (PED = ∞): A small price change leads to an infinite change in quantity demanded or supplied.
• Perfectly Inelastic (PED = 0): Quantity demanded or supplied does not change at all when the price changes.

1. Elastic Demand/Supply (PED or PES > 1)

• A small change in price leads to a relatively large change in quantity demanded or supplied.
• Example: If PED = 2, it means that a 1% increase in price causes a 2% decrease in quantity demanded.
2. Inelastic Demand/Supply (PED or PES < 1)
• A change in price leads to a relatively small change in quantity demanded or supplied.
• Example: If PED = 0.5, it means that a 1% increase in price causes only a 0.5% decrease in quantity demanded.
3. Unitary Elastic Demand/Supply (PED or PES = 1)
• The percentage change in quantity demanded or supplied is exactly equal to the percentage change in price.
4. Perfectly Elastic Demand/Supply (PED or PES = ∞)
• The quantity demanded or supplied responds infinitely to a change in price.
5. Perfectly Inelastic Demand/Supply (PED or PES = 0)
• Quantity demanded or supplied does not change at all regardless of price changes.
Elasticity – w¯’wZ¯’vcKZv
Elasticity of Demand – চাহিদার হিহিিাপকিা