Week 1: How Markets Work?

Week 1: How Markets Work?

“Getting Started … How Societies Make Choices? … How Consumers Buy? … How Producers Sell?”
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Summaries

  • Week 1: How Markets Work? > Getting Started > Overview
  • Week 1: How Markets Work? > How Consumers Buy? > Factors That Affect Demand - Part 1

Week 1: How Markets Work? > Getting Started > Overview

  • We will start off by talking about the subject matter of economics.
  • We will talk about market economies and how markets are central to how most modern economies work and then we will introduce you to some simple models of economics.
  • Finally, we will get started in real earnest into the subject matter of economics: we will talk about demand and supply.

Week 1: How Markets Work? > How Consumers Buy? > Factors That Affect Demand – Part 1

  • What we buy obviously depends on our income. So, how does income affect our buying behaviour? Let us consider milk.
  • If we do, then we will define milk to be a normal good.
  • As incomes go up, milk consumption goes up not only because we drink more milk, but we also drink more milkshakes and consume more milk-based sweets.
  • Your parents probably forced you to drink milk as a child and you gave it up as soon as you could.
  • For you, the idea of drinking more milk as your income increases is insane.
  • At a price of 10 rupees, consumers in Bangalore are buying 15 gallons and if the price comes down to Rs. 5, the amount of milk which is consumed is 20 gallons.
  • They’re consuming along with other things more milk.
  • We would expect consumers to buy more milk at the same price.
  • Now at a price of 10, the consumers are buying 17 gallons of milk as compared to 15 earlier.
  • At a price of 5, the consumers are buying 25 gallons of milk as compared to 20 earlier.
  • When income changes and if milk is a normal good, then the quantity demanded of milk increases at every price.
  • If milk is an inferior good, something that people drink less as their income increases, then the effect will be reversed.

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