Demand

and Supply
 What to Produce with our limited
resources

Core Issues
How to produce the goods and
in services we select
Economics
For whom goods and services are
produced – who actually gets
them?
  Invisible Hand of a Market Economy
 Adam Smith in 1776 in Wealth of Nation
 How Does Hyundai decide how many cars to
produce in India?
Mechanism of  There is no “Auto Czar” who dictates this

Choice  “Market” Decides how many cars are to be

produced
 Consumers signal their desire to have a car –
green signal to producers
 Auto output increases
 What will happen if consumers stop buying
cars?
 No direct contact between consumers and producers

Communication is indirect

Market Transmitted by Market Prices and Sales

Mechanism Market Mechanism also answers the HOW question

Producers seek the lowest cost method of producing the same

FOR WHOM: for consumers who are willing and able to pay the most
for the product- Not all of us have the latest Apple Phone or the
latest BMW car
  Adam Smith Vs Keynes

Mixed Economy- India is an example

Government


Intervention  Market Failure

 Government Failure- Greece

  Given by Adam Smith – Water Diamond Paradox
 Demand- Individual Demand and Market
Demand
 Demand Supply Model- combines two important
concept- Demand Curve and Supply curve
Demand and  Demand Curve: Shows the different combination
Supply of goods that the consumers are willing to buy
as the price per unit changes
 Downward Sloping Line
  Tastes – Kellogs cornflakes in India
 Income (of the consumer)
 Substitutes and Complements-
Factors Affecting Network service and smartphone,
Coke and Pepsi, Amul Vs Kwality
Demand Walls
 Seasonality (Umbrellas in rainy
season, ACs in summers)
Demand Curve
 Ceteris Paribus
Movements Vs


 Movement along the demand curve are due to

Shifts of Demand price change
Shift happens when determinants of demand
Curve

changes
Movements Vs Shifts of Demand Curve

Movement Along Demand

Shift of Demand Curve Curve
  Shows the total quantities of goods that
sellers are willing and able to supply at a
given price

Supply Curve  Supply curve is upward sloping

 Producers will be willing to supply more at

higher price
  Factor Costs- Labor and Capital
Technology
Factors Affecting


 Other Goods
Supply  Taxes and Subsidies
 Number of Sellers- Vegetable market
Supply Curve
Shifts and Movement along the Supply
Curve
Movements along supply
Shifts of Supply Curve curve
Market Equilibrium
 Where the Demand and
Supply curve intersects
 Price and Quantity
compatible to both
consumers and suppliers
 Equilibrium Price and
Quantity
Excess Demand and Excess Supply
RoohAfza Back in market after Temporary Shortage: Hamdard Laboratories

Temporary shortage due to short supply of certain herbal ingredients

Unprecedented demand due to Ramzan month and peak summer season 

  International Data Corporation (IDC) expects overall
India PC market to decline due to Intel chip shortages
and also on account of post Diwali slowdown of the
market
 HP, Dell and Lenovo are also facing the brunt of it,
but not on a larger scale

Shortage of Intel  It all started due to Intel’s delay in transitioning from

14 nanometer chipsets to 10 nanometer chipsets,
because of which the 8th generation processor faced
chips to hit a shortage,
Intel did not anticipate the demand to be so great
Indian PC


 Intel still has a backup plan as the 6th and 7th

generation chips are still in the Indian market
market  Players such as Asus and Acer are particularly focusing
on AMD processors
 AMD is positioning its Ryzen series to compete with
Intel’s i3 and i5 processors
 Intel processors are priced a bit at the premium
Demand and Supply Shifts

Shift of Demand Curve Shift of Supply Curve