Demand & supply

Demand & supply

 This one of the most simple sounding concepts in Economics but it is a very important concept. As has been positively written about India and other BRIC countries, the increasing population and increasing wealth and size of middle class in India and other BRIC countries is leading to ever increasing demand for all sorts of products and services like cars, two wheelers, consumer durables, mobile telephony etc.. This means an ideal scenario of increasing sales and profits for most of the companies in India.

The most important words in economics which explain the irrational rise in price of assets, commodities etc. – the rise in price of crude oil from $10/ barrel in 2000 to $147 / barrel in 2008 – is partly due to increased demand. Even the irrational increase in equity prices in bull market is a case of demand being much more than the supply of shares - the buyers outnumber the sellers -a classic sellers market and hence weeds get sold as flowers 2006-2007. And in the bear market, it is the vice versa- the sellers outnumber the buyers and hence the supply of shares is much more than the demand. The result -dramatic fall in prices. A classic buyers market- and hence flowers are being sold at the prices of weeds as in 2008.