Effect of change in demand and supply

Due to change in the demand and supply of the product, there is also change in its quantity and price. This relationship can be best analysed through the following four scenarios:

The change in the demand and supply of a product has usually four different types of effects on quantity and price which are as follows.

1. ↑ S > ↓ D = ↑ Q , ↓P

Where, S = supply, D = Demand, Q = quantity and P = Price

For the above case, if increase in supply is greater than the decrease demand, this means that there is more quantity due to greater supply, but its demand is comparatively low. Therefore the supplier needs to reduce its price so that more quantity is being purchased by the customer.

2. ↑ S < ↓ D = ↓ Q , ↓ P

For the above case, the increase in supply is less than the decrease in the demand, which means that we have less increase in supply, therefore the quantity automatically decreases and since we have a less demand, therefore the price has to be reduced in order for more sale.

3. ↑ S > ↑ D = ↑ Q , ↓ P

In this case we have more supply as compared to demand, as the increase in supply is greater than the increase in demand, therefore automatically the quantity will increase due to more supply and price will decrease due to less demand as compared to supply.

4. ↑ S < ↑ D = ↓ Q , ↑P

For the above case, the increase in supply is less than the increase in the demand, which means that we have less increase in supply, therefore the quantity automatically decreases, but this time we have more demand, therefore the price will automatically go up in order to balance the decrease in quantity.