web economics

THE DEMAND AND SUPPLY MODEL
“It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own self-interest. We address ourselves not to their humanity but to their self-love, and never talk to them of our own necessities, but of their advantages”
― Adam Smith, “ An Inquiry into the Nature and Causes of the Wealth of Nations”.
These words, written and explained by the Scottish Economists, Adam Smith in his famous book, “ An Inquiry into the Nature and Causes of the Wealth of Nations” which was published in 1776. Adam Smith wrote this fundamental book on how free markets work. The Wealth of Nations offered a number of important ideas about what makes an economy work, including the crucial role that human self-interest plays. Smith is saying that participants in the economy are motivated by self-interest and the “invisible hand”- the demand and supply, of the market place guides this self-interest into promoting general economics. The invisible hand is powerful, but it is not omnipotent. The Market economy allocates resources through decentralised decisions of many firms and households as they interact in markets for goods and services.
The terms demand and supply refer to the manner of buyers and sellers interacting with each other in competitive markets. The buyers as a group determine the demand for the product , and the sellers as a group determine the supply of the product. Now let us look at the components of the demand.
THE DEMAND MODEL
Following are the components of demand.
THE DEMAND CURVE :
The quantity demanded of a commodity is what the buyers are willing and able to purchase. A curve of the relationship between the price of a good and the quantity demanded is known as the demand curve .
LAW OF DEMAND :
The law of demand states that, other things constant, ceteris paribus, when the price of a good rises, the quantity demanded of the good falls and when the price falls , the quantity demanded rises.
DEMAND SCHEDULE :
The demand schedule shows the relationship between the price of a commodity and the quantity demanded, holding constant everything else that influences how much of the commodity the consumers want to buy.

Price
$4 A
B
    D
0 20 30 quantity
FIGURE 1 : THE DEMAND SCHEDULE
Changes that rises the quantity that buyers wish to purchase at any given price shifts the demand curve to its right. Similarly, changes that lowers the quantity that buyers wish to purchase at any given price shifts the demand curve to...