BANGLADESH UNIVERSITY OF PROFESSIONALS

ASSIGNMENT ON
UNDERSTANDING MARKET FORCES
THE ROLE OF SUPPLY AND DEMAND
COURSE DETAILS

COURSE NAME: INTRODUCTION TO MICRO ECONOMICS

COURSE CODE: 1207

SUBMITTED TO

ASSISTANT PROFESSOR MOHAMMAD NUR ULLAH

DEPARTMENT OF PUBLIC ADMINISTRATION
FACULTY OF ARTS & SOCIAL SCIENCES (FASS)
BANGLADESH UNIVERSITY OF PROFESSIONALS (BUP)

SUBMITTED BY
GROUP MEMBERS
1 ANIKA TABASSUM PRIYONTY 24169410044
2 SAMIRAH SHARIF MUNTAHA 25169410016
3 DHEERAJ AYMAN 25169410031
4 ISHAT ZARIF 25169410053
5 TANJILA AKTHER TISHA 25169410078

OUR DETAILS

SEMESTER: SECOND
YEAR: FIRST
DEPARTMENT OF PUBLIC ADMINISTRATION
FACULTY OF ARTS & SOCIAL SCIENCES (FASS)
BANGLADESH UNIVERSITY OF PROFESSIONALS (BUP)

1
UNDERSTANDING MARKET FORCES
THE ROLE OF SUPPLY AND DEMAND

2
 Abstract
This paper shows the fundamental economic principles of supply and demand, which was outlined in
Gregory Mankiw’s Principles of Microeconomics, to analyze how market prices are determined and
resources allocated efficiently. It looks at how buyers and sellers interact in competitive markets and how
prices balance to reach market equilibrium. Special attention is given to the factors that shift demand and
supply, including income changes, technology, government policies, and social expectations.

This study uses real examples from Bangladesh, like changes agriculture and global issues to show how
unexpected changes and government actions affect market, by causing surpluses or shortages. It highlights
why knowing supply and demand matters for policymakers, producers, and consumers, and points out the
limits of classical models in developing countries while suggesting ways to apply them in practice and
improve policies.

3
TABLE OF CONTENTS
1. Introduction ..............................................................................................................................................6
2. Literature Review.....................................................................................................................................6
2.1 Theoretical Background .......................................................................................................................6
2.2 Empirical Evidence and Global Context ..............................................................................................6
2.3 Supply and Demand in Bangladesh ......................................................................................................6
2.4 Gaps in Existing Literature ...................................................................................................................6
2.5 Summary of Literature Review ............................................................................................................6
3. Objectives ..................................................................................................................................................7
4. Methodology .............................................................................................................................................7
4.1 Research Design ...................................................................................................................................7
4.2 Data Sources .........................................................................................................................................7
4.3 Case Study Approach ...........................................................................................................................7
4.4 Analytical Framework ..........................................................................................................................7
4.5 Limitations............................................................................................................................................7
5. Findings .....................................................................................................................................................8
5.1 Introduction to Markets (Zarif 25169410053) .................................................................................8
5.2 Understanding Demand (Priyonti 24169410044) ............................................................................8
5.2.1 Components of Demand ................................................................................................................8
5.2.2 Law of Demand .............................................................................................................................8
5.2.3 Demand Curve ...............................................................................................................................8
5.2.4 Market Demand Versus Individual Demand .................................................................................9
5.2.5 Movement Along the Demand Curve Vs. Shift in The Demand Curve ........................................9
5.2.6 Determinants of Demand ...............................................................................................................9
5.2.7 Real-Life Examples .....................................................................................................................10
5.3 Understanding Supply (Tisha 25169410078) .................................................................................10
5.3.1 Quantity Supplied ........................................................................................................................10
5.3.2 Law of Supply ..............................................................................................................................10
5.3.3 Supply Schedule ..........................................................................................................................11
5.3.4 Supply Curve ...............................................................................................................................11
5.3.5 Individual Supply vs. Market Supply ..........................................................................................11
5.3.6 Supply Curve Shifter ...................................................................................................................12
5.4 Market Equilibrium (Samirah 25169410016) ................................................................................13
5.4.1 Supply and Demand together .......................................................................................................13

4
 5.4.2 Market Equilibrium......................................................................................................................13
5.4.3 What Happens When the Price Is Not at Equilibrium? ...............................................................14
5.4.4 Summary ......................................................................................................................................15
5.5 Changes in Equilibrium (Dheeraj 25169410031) ..........................................................................15
5.5.1 What is Equilibrium? ...................................................................................................................15
5.5.2 What is change in Equilibrium?...................................................................................................15
5.5.3 Case study 1: Tea vs Coffee (D Curve Shifts): ............................................................................16
5.5.4 Case Study 2 (S Curve Shifts): ....................................................................................................17
5.5.5 Case Study 3 (Both Shifts): .........................................................................................................17
5.5.6 Conclusion ...................................................................................................................................18
6. Conclusion...............................................................................................................................................18
7. References ...............................................................................................................................................19

5
1. Introduction
Chapter 4 of Principles of Microeconomics by N. Gregory Mankiw focuses on one of the most essential
foundations of economic analysis: the market forces of supply and demand. This chapter explains how
buyers and sellers interact within competitive markets and how their decisions collectively determine prices
and quantities exchanged. Mankiw introduces the laws of demand and supply, explores the factors that shift
each curve, and shows how equilibrium is reached through the natural adjustments of the market. By
understanding these forces, readers gain a clearer view of how markets coordinate economic activity and
respond to changes in the economic environment.

2. Literature Review
2.1 Theoretical Background
The principles of supply and demand is the core of microeconomics which explains how prices are fixed
and resources are allocated in competitive markets. Mankiw states that if the price increases peoples buy
less, & if the price decreases people buy more. This is Law of Demand which creates downward sloping
demand curve. Factors like revenue, other goods, choices, expectations, and the number of buyers can shift
this curve. (Samuelson & Nordhaus, 2010).
And when the price increases, producers try to supply more, and when price falls, they try to supply less.
This is Law of Supply which creates an upward sloping supply curve. Changes in other costs, new
technology, government policies, expectations, or the number of sellers can shift this curve (Krugman &
Wells, 2018).
Market equilibrium occurs when demand is equal to supply. Economists like Smith and Mankiw explain
that there’s an invisible hand that naturally adjust prices in competitive markets to keep supply and demand
equal. Surpluses lower prices and shortages raise them.
2.2 Empirical Evidence and Global Context
Supply-demand can be seen in real life scenario. For example, when geopolitical conflicts arise, the prices
of oil rises as well. Crises like COVID-19 caused sudden increase of demand, leading to short-term
shortages. Technology, like automation and better logistics, will lower the production costs, increase the
supply and reduce prices (Krugman & Wells, 2018).
2.3 Supply and Demand in Bangladesh
Bangladesh has a lot of examples of supply and demand at work, especially in agriculture. In the rice market,
demand stays fixed while supply changes in different seasons, or in natural calamities, which changes the
price. (BRRI, 2022). The onion market shows almost the same thing in 2019 (The Daily Star, 2019). The
fuel industry also affects when oil prices rose in 2022 (BERC, 2022).
2.4 Gaps in Existing Literature
Mankiw’s supply-demand model is directly connected to overall world but only a few to developing
countries like Bangladesh. Social factors like panic buying, storing, political influences and market
manipulation are also often neglected, but these play important role to understand markets in a developing
economy.
2.5 Summary of Literature Review
• Supply and demand principles, with Law of Demand and Law of Supply.

6
 • Global evidence, like oil shocks and COVID-19 increases demand.
• In Bangladesh, agriculture and fuel markets show how different changes affects local prices.
• Focus should be on other factors as well to understand markets in a developing economy.
3. Objectives
• To study how supply and demand determine prices and equilibrium in competitive markets.
• To learn what factors affect buyers demand for goods and sellers supply of goods.
• To learn how do changes affect demand and supply in market.
4. Methodology
A qualitative secondary data analysis and analytical research approach will be used in this paper, by
reanalyzing both secondary data and theoretical frameworks from Mankiw’s Principles of Microeconomics.
It is time-efficient and reduces cost as well, allowing for a lot of scope of analysis.
4.1 Research Design
The research design is descriptive and analytical, focusing on understanding the relationship between
supply, demand, and price determination in competitive markets. It explores how shifts in demand and
supply curves influence market outcomes, and how external factors such as government policies,
technology, globalization, and consumer expectations affect equilibrium.
4.2 Data Sources
This study relies primarily on secondary data, which includes:
• Textual references from Mankiw’s Principles of Microeconomics and other economics books.
• Research papers, journal articles, and reports from several organizations like the World Bank,
Bangladesh Bureau of Statistics, and Bangladesh Bank etc.
• News reports like The Daily Star, Dhaka Tribune, and Prothom Alo etc.
4.3 Case Study Approach
Some market cases have been considered to understand supply and demand and equilibrium properly. And
they are:
• The rice market in Bangladesh.
• The fuel markets.
• Tea vs Coffee
Through these examples, we’ll understand how supply and demand works.
4.4 Analytical Framework
Several graphs are used to understand the relationships between price, quantity demanded, and quantity
supplied. Demand and supply schedules are used to understand market equilibrium, shifts caused by
external changes, and the resulting new equilibrium positions.
4.5 Limitations
It’s a theoretical study, so it does not include any quantitative data or econometric modeling. The analysis
is limited to secondary source.

7
5. Findings
5.1 Introduction to Markets (Zarif 25169410053)
Markets are central to modern economies, providing a space where buyers and sellers exchange goods and
services. Microeconomics explains these interactions through supply and demand, especially within a
competitive market, where many buyers and sellers participate and each individual has a negligible effect
on price. In a perfectly competitive market, all goods are identical, and buyers and sellers are so numerous
that no one can influence the market price everyone is a price taker.

According to Mankiw, demand falls when prices rise and increases when prices fall, while supply expands
when prices rise and contracts when prices fall. Their intersection determines the market equilibrium, the
price and quantity at which trade happens efficiently, most clearly seen in a perfectly competitive market.

Real-world markets, however, often deviate from this ideal. External shocks natural disasters, global price
changes, or sudden shifts in consumer preferences, can disrupt equilibrium. Bangladesh provides clear
examples: onion prices fluctuate due to seasonal harvests, import policies, and hoarding, while fuel prices
shift in response to global supply conditions.

Market outcomes are also shaped by policies, technology, and expectations. Subsidies can raise production,
price ceilings may cause shortages, and expectations about future prices influence current demand.

This paper examines how supply and demand operate in competitive and perfectly competitive markets,
applies these ideas to Bangladesh, and evaluates how disruptions affect consumers, producers, and
policymakers, showing both the usefulness and the limits of classical economic models.

5.2 Understanding Demand (Priyonti 24169410044)

Demand refers to the quantity of a good that buyers are willing and able to purchase at different prices in a
given time period.
5.2.1 Components of Demand
• Desire or willingness
• Ability to purchase (purchasing power)
• Availability of goods

5.2.2 Law of Demand

The Law of Demand states that, there is an inverse relationship between the price of a good and the quantity
demanded by consumers. This means that when the price of a product increases, consumers tend to buy less
of it, and when the price decreases, they buy more.
Price ↑ - Demand ↓
Price ↓ - Demand ↑
This inverse relationship exists because of:
[Link] Effect – Consumers switch to cheaper alternatives when price rises.
[Link] Effect – A lower price increases consumers’ real purchasing power, allowing them to buy
more.
Thus, the demand curve slopes downward.
5.2.3 Demand Curve
The demand curve is a downward-sloping graph that shows how quantity demanded changes with price.

8
It is drawn with price on the vertical axis and quantity demanded on the horizontal axis. Each point on the
demand curve represents a specific quantity that consumers are willing and able to purchase at a particular
price. The downward slope also captures the effects of substitution and income.

5.2.4 Market Demand Versus Individual Demand

Individual Demand:
Individual demand refers to the quantity of a good that one single consumer is willing and able to buy at
different prices. It shows how one person reacts to price changes.

Market Demand:
Market demand is the total demand of all consumers in the market for a particular good. It is found by
adding up all individual demands horizontally (at each price level).
5.2.5 Movement Along the Demand Curve Vs. Shift in The Demand Curve
A movement along the demand curve occurs when the price of the same good changes. If the price
decreases, consumers buy more, causing a downward movement along the curve; if the price increases,
consumers buy less, causing an upward movement along the curve. In this case, the demand curve itself
does not move only the point on the curve changes. This is called a shift in the quantity demanded, because
the quantity demanded changes due to the change in price.
In contrast, a shift in the demand curve occurs when non-price factors change. The entire demand curve
shifts to a new position either to the right (an increase in demand) or to the left (a decrease in demand). This
occurs when income changes, tastes or preferences change, the price of related goods changes, expectations
change, or the number of buyers changes. A shift means that consumers are willing to buy different
quantities of a good at each price level. This is called a change in demand, not just a change in the quantity
demanded.
5.2.6 Determinants of Demand
According to N. Gregory Mankiw, there are five major factors that shift the demand curve.

9
1. Income
• Normal goods: A good for which, other things being equal, an increase in income leads to an increase
in demand.
Income ↑ demand ↑
• Inferior goods: A good for which, other things being equal, an increase in income leads to a decrease
in demand.
Income ↑ demand ↓
Income changes affect purchasing power, shifting the demand curve.

2. Prices of Related Goods:

Substitutes: Goods that can replace each other. If the price of one rise, demand for the other rises.

Complements: Goods used together. If the price of one rise, demand for the other falls.

3. Tastes: Consumers’ preferences influence demand. If a product becomes more popular or trendy, its
demand increases.

4. Expectations: Consumers’ expectations about future prices or income affect today’s demand.

5. Number of Buyers: A larger population or entry of new consumer groups increases demand.
5.2.7 Real-Life Examples
A. Rice Market (Bangladesh):
When the price of rice increases, many families especially with lower income buy less rice or switch to
cheaper varieties. But during festivals or before Ramadan, people expect prices to rise, so they buy more
earlier, which shifts the demand curve to the right. This shows both movement along the curve (due to price
changes) and shifts (due to expectations).
B. Fuel Market (Global & Bangladesh):
When fuel prices go up, people reduce driving or use public transportation, showing a movement along the
demand curve. But if global oil prices are expected to rise in the future, people fill their tanks early,
increasing today’s demand and shifting the demand curve to the right.
5.3 Understanding Supply (Tisha 25169410078)
Supply refers to the behavior of sellers. It is the amount of a good or service that producers are willing
and able to offer for sale at different prices during a specific period.
5.3.1 Quantity Supplied
Quantity supplied is the specific amount of a product that sellers are ready to sell at a particular price
5.3.2 Law of Supply
The Law of Supply states that, when the price of a good rises, the quantity supplied also rises, other
things remaining equal.
This means sellers are more willing to produce and sell more when the price increases because it becomes
more profitable.
Price ↑ → quantity ↑
Price ↓ → quantity ↓

10
5.3.3 Supply Schedule
A supply schedule is a table that shows the relationship between the price of a good and the quantity
supplied.

5.3.4 Supply Curve

A supply curve is the graphical form of a supply schedule.
• It is an upward-sloping line from left to right.
• The upward slope shows that when price increases, sellers supply more.

5.3.5 Individual Supply vs. Market Supply

Individual Supply

This shows the quantity supplied by one seller at different prices.

Market Supply
Market supply represents the sum of all individual supplies in the market.
Formula:
Market Supply = Supply of Seller 1 + Supply of Seller 2 + …

Market Supply Curve

The market supply curve is also upward-sloping. It is formed by adding all sellers’ quantities at each price
point.

11
5.3.6 Supply Curve Shifter
A supply curve shows how much producers are willing to supply at different prices. Normally, if the price
increases, firms supply more. This is shown when other things remain the same.

Supply curve shifter: Input Price

The Law of Supply states that, all else equal, the quantity supplied of a good rise when the price of the
good rises. This relationship is illustrated by the upward-sloping Supply Curve (S). However, the entire
supply curve can shift, meaning that the quantity supplied changes at every price. These changes are
caused by external factors known as Supply Curve

Supply Curve Shifters

[Link] Prices
Input prices are the costs of production, such as wages, rent, and the prices of raw materials. This is one of
the most direct determinants of supply.

2. Technology
Technology refers to the methods used to transform inputs into output. It essentially determines how many
inputs are required to produce a unit of a good.

3. Number of Sellers
The number of sellers in the market directly impacts the total quantity of a good supplied.
An increase in the number of firms selling a product led to a greater overall quantity supplied at every
price. Therefore, the S curve for the entire market shifts to the right.

4. Expectations
A firm's expectations about future prices can influence its current supply decisions.
12
If a firm expects the price of the good it sells to rise in the near future, it may choose to hold back some of
its current inventory (reduce supply now) to sell it later at the anticipated higher price.

5.4 Market Equilibrium (Samirah 25169410016)

5.4.1 Supply and Demand together
When we put supply and demand together in one diagram, they show how the market sets the price of a
good and the amount that is bought and sold. The interaction of these two forces creates what economists
call market equilibrium.

5.4.2 Market Equilibrium

Equilibrium is the point where the supply curve and the demand curve intersect.

➢ Equilibrium Price: The price at which the quantity buyers want to purchase equals the quantity
sellers want to sell.

P Qd Qs
$0 24 0
$1 21 5
$2 18 10
$3 15 15
$4 12 20
$5 9 25
$6 6 30

13
 ➢ Equilibrium Quantity: The amount of the good bought and sold at the equilibrium price.

P P Qd Qs
d s $0 24 0
$ $1 21 5
$2 18 10
6 $3 15 15
$ $4 12 20
$5 9 25
5 $6 6 30
$
4
$ 0 5 10 15 20 25 30 35

At this point, the market is balanced. Buyers are satisfied because they can purchase what they want, and
sellers are satisfied because they can sell all they produce. For this reason, the equilibrium price is also
called the market clearing price.
5.4.3 What Happens When the Price Is Not at Equilibrium?

➢ Price Above Equilibrium

If the market price is higher than the equilibrium price, sellers want to provide more than buyers want to
purchase. There is a surplus, which means there are too many goods left unsold. Sellers lower their prices

to increase sales.
As the price falls, the quantity demanded increases while the quantity supplied decreases. This process
continues until the price goes back to equilibrium.
➢ Price Below Equilibrium

If the market price is lower than the equilibrium price, buyers want to buy more than sellers are willing to
provide. This creates a shortage. Buyers compete with each other, and sellers increase their prices.

14
As prices rise, the quantity demanded decreases, and the quantity supplied increases. This process brings
the market back to equilibrium.

5.4.4 Summary
Supply and demand together determine the market equilibrium, where the quantity supplied equals, the
quantity demanded. If the market price is too high, a surplus pushes the price down. If it is too low, a
shortage pushes the price up. The natural movement of prices toward equilibrium reflects the law of supply
and demand. When outside events shift either the supply curve or the demand curve, a new equilibrium
price and quantity are formed.
5.5 Changes in Equilibrium (Dheeraj 25169410031)
5.5.1 What is Equilibrium?
According to Mankiw, equilibrium is: “A situation in which the price has reached the level where Quantity
supplied equals quantity demanded.” (Mankiw, Principles of Microeconomics). For example, equilibrium
price of Fuel in Bangladesh is 128 BDT per liter of octane, Padma Petrol Pump is willing to supply 80000
liter per day and the total consumer also wants the exact amount. So, there’s no shortage as there is no long
queues and there is no surplus as there is no unsold fuel. It stabilizes the price.

5.5.2 What is change in Equilibrium?

According to Mankiw, a change in equilibrium occurs when the demand curve or the supply curve is shifted
by something. It changes the equilibrium price and equilibrium quantity. A change in equilibrium occurs
when demand increases or decreases, or supply increases or decreases. This change creates a new
intersection point between supply and demand. It creates a new equilibrium price and a new equilibrium
quantity. For example, usually a family need a certain amount of rice every month and the price are 60 BDT

per kg. But during Ramadan they need more rice than other months. That means the demand is increasing.
As demand increases, sellers raise the price to 70 BDT per kg.

15
Here demand curve shifted right which causes an increase in price and quantity of rice needed.
If we need to analyze the change in equilibrium, we have to determine the effects of any events. A change
in equilibrium occurs when an external factor most likely a nonprice determinant causes either the Demand
curve, the Supply curve, or both, to shift. Demand curve is shifted due to change of income, prices of
substitutes or complements, tastes or preferences, expectations, or number of buyers. Supply curve is shifted
due to change of costs, technology, expectations, or number of sellers. Then we need to determine the
effects of these changes that shifts supply and demand curves. This is how we analyze it:
1. Decide which curve shifts: Identify which determinant affected by the event. For example, when the
price of coffee increases, people shift their preference to Tea. So, it shifts the D curve of Tea.
2. Decide in which direction the curve shifts: After identifying the curve, determine if it is increased
or decreased. D Shifts Right means the change has increased the buyer’s demand to buy more. And
D shifts Left means the change has decreased the buyer’s demand to buy less. S Shifts Right means
the change has increased the production by the supplier. And S Shifts Left means the change has
decreased the production by the supplier.
3. Use the supply and demand diagram to see how the shift changes equilibrium P and Q: This is where
we have to compare Equilibrium 1 with Equilibrium 2. Here, If D shifts more than S, P rises and if
S shifts more than D, P falls.
5.5.3 Case study 1: Tea vs Coffee (D Curve Shifts):

Government added tax on imported coffees. As the price of coffee increased, the people changed their
preference on Tea. So, the demand for tea increased. The equilibrium price of the coffee was $3, after the
change it became $5. And the equilibrium quantity of tea was 15, after the change it became 25.

16
5.5.4 Case Study 2 (S Curve Shifts):
Government brought new technological based tea maker, which reduces the time of making tea. Supply
curve shifted to right sides as a result, they can supply more and it caused the price to fall from $3 to $2 and
the quantity increased from 15 to 18.

5.5.5 Case Study 3 (Both Shifts):

Government increased tax on coffee and brought new technological based tea maker as well, which
increased the price of coffee, and decreased the cost of making tea. As a result, the curves supply and
demand of tea both shifted to right side which means both was increased. The quantity demanded is
increased but the change in price is unclear. Here if demand increases more than supply, price will raise
and if supply increases more than demand, price will fall.
When Change in Demand > Change in Supply Price rises:

17
When Change in Supply > Change in Demand Price Falls:

5.5.6 Conclusion
These case studies prove that in order to analyze changes in equilibrium, we need to determine the effects
of any event like, change of price, change of technology, number of buyers and seller etc. We have to go
through three steps. It is necessary to analyze the change of equilibrium because it helps us to predict market
outcomes, then we can separate cause from effects and also helps to handle complex scenarios. Ultimately,
this structured approach eliminates confusion and allows for clear predictions.
6. Conclusion
Now we can say that supply and demand are the essential forces that shapes market by setting prices and
distributing resources efficiently. After the analysis of theoretical concepts and real-world examples, it is
clear that the balance between buyers and seller determine market outcomes. It is based on N. Gregory
Mankiw’s Principles of Microeconomics and covered core ideas such as the Law of Demand and the Law
of Supply. When supply equals demand, the market reaches equilibrium, ensuring efficiency. Then, events
like new technology, new government policy, change of taste, change of consumer behavior, number of
sellers or buyers affect market equilibrium. Case studies, including rice, fuel, and tea markets in
Bangladesh, show how demand and supply affects both producers and consumers. In conclusion, learning
about supply and demand helps people and governments understand how markets work, respond to changes
wisely, and make better decisions that support long-term economic growth.

THE END

18
7. References
Mankiw, N. G. (2018). Principles of microeconomics (8th ed.). Cengage Learning.

Samuelson, P. A., & Nordhaus, W. D. (2010). Economics (19th ed.). McGraw-Hill Education.

Krugman, P., & Wells, R. (2018). Microeconomics (5th ed.). Worth Publishers.

Smith, A. (1776). An inquiry into the nature and causes of the wealth of nations.

Bangladesh Rice Research Institute (BRRI). (2022). Annual report. Gazipur: BRRI.

Bangladesh Energy Regulatory Commission (BERC). (2022). Fuel price adjustment report. Dhaka: BERC.

The Daily Star. (2019, November). Onion market crisis: Price hike and supply disruption.

World Bank. (2022). Bangladesh development update: Recovery and resilience amid global uncertainty.

Bangladesh Bureau of Statistics (BBS). (2022). Statistical yearbook of Bangladesh 2022.

Bangladesh Bank. (2022). Monetary policy review.

Dhaka Tribune. (2022). Impact of global fuel price hike on local markets.

Prothom Alo. (2022). Economic report: Inflation and market adjustment in Bangladesh.

Krugman, P. (2020). The return of depression economics and the crisis of 2020. W.W. Norton & Company.

Samuelson, P. A. (1980). Foundations of economic analysis. Harvard University Press.

19