(a) Differences between extension in demand and increase in demand:
|Extension in Demand||Increase in Demand|
|1. When the quantity demanded of a commodity rises due to a fall in its own price, it is known as extension in demand||When more is demanded at the same price or same quantity of a commodity is demanded at a higher price it is known as increase in demand|
|2. It is caused due to a change in the price of the commodity itself.||It is caused not due to a change in price hut due to other factors affecting the demand for a commodity. For example, increase in the income of a person, change in taste and preference of the consumer|
|3. It leads to a rightward shift in the demand curve.||It leads to a downward movement along the same demand curve.|
(b) Meaning of Supply: Supply is the quantity of goods offered for sale in a market, at given time, at given price.
Factors which determine the supply of commodity:
1. Price of the Commodity: There is a positive relation between the price of the commodity and quantity supplied. The higher the price, the more will be the supply of the commodity. Producers are benefitted by higher prices and produce more to gain from rising prices. This relation between price and supply is given in the law of supply.
2. Prices of Factors of Production: Higher prices of factors of production increase the cost of production and dampen the sales and production. Cheaper factors of production increase the supply and demand for the commodity produced by such factors.
3. State of Technology: Technique of production determines productivity, quality of the product and the cost of production. Producers use better technology to reduce the cost of production and increase productivity for increasing the supply. Out-dated technology blocks the supply of goods and results in more wear and tear during the production process.
4. Government Policy: Government policies also influence the Supply of a product. For example, government may impose sales tax on the sales value of a product sold by the seller. The seller has to pay his tax to the govt. To keep the profit margin as before, the seller may sell the same quantity at a higher price than before or the seller would supply a lesser quantity at the same price. If the government gives a subsidy to the seller on the sales value of the product, the seller can now sell the same quantity at a lower price than before or he can supply more at the old price level.