Demand for a commodity refers to the quantity of the commodity which an individual consumer or a household is willing to purchase per unit of time at a particular time.

The Law of Demand

Law of demand states that higher the price lower the quantity demanded and vice versa other thing remaining constant.

Giffen good

A commodity in which a decrease in the price of good results in decrease in its quantity demanded and vice versa. This is an exception to the law of demand.

Income elasticity

The percentage change in quantity demanded caused by a 1% change in income.

Marginal revenue

The change in total revenue resulting from changing quantity by one unit.

Price elasticity of demand

The percentage change in quantity demanded caused by a 1% change in price.

Economics of scale

This refers to the reduction in the cost as the firm increases all of its inputs. In other words production cost per unit decreases as total production increases up to an extent.

Average fixed cost

This refers to the fixed cost per unit of output.

Average total cost

The total cost per unit of output.

Average variable cost

This refers to the variable cost per unit of output.

Marginal cost

The cost to a firm of producing an external unit of an output.

Total cost

This refers to the total cost of production including both variable and total fixed costs.

Economic order quantity

Maintaining inventory means we are incurring costs in the form of in the form of interest on investment, storage cost ,pilferage cost etc. while if we do not maintain inventory then production may be affected  and supplies may not be made on time.


Stonier and Hague explain the term market as “any organizational where by buyers and sellers of a good are kept in close touch with each other. The only essential for a market is that all buyers and sellers should be in constant touch with each other.

Perfect Competition

A market structure characterized by:

  • A very large number of relatively small buyers and sellers. Therefore a single buyer`s and seller`s action cannot have an perceptible influence market price.
  • All sellers are selling homogeneous products.
  • The firms are free to enter and leave the industry.
  • The firms in the industry do not collide with each other.
  • The factors of production must be free to enter or leave the industry.
  • Each buyer and sellers operate under conditions of certainty, being endowed with complete knowledge of prices, quantities, costs, and demand.