The Invisible Supply & Demand in Our Everyday Lives

1,269 views Wait, is this logic right? • May 23, 2023

Slog Reference: Supply and demand

Description

How supply and demand works? Supply and demand is a fundamental economic phenomenon that dictates many things. It is not limited to economics it can be applied to various aspects of life. So what is supply and demand in economics? How do supply and demand work? What is the supply curve? What is the demand curve? How does supply and demand work? What are the real-life applications of supply and demand?

If you want answers to these questions or if you don't know if you want to understand supply and demand. This video is for you.

More Vidoes:
Should India Be Scared of Trump’s Trade Power?: https://youtu.be/yajGC6Y1Kis
Why Surge Pricing Feels Wrong: https://youtu.be/IsHPxh-C0Sw

Hope you enjoyed FutureIQ by Navin Kabra and Shrikant Joshi. Do hit us up on Twitter:
@ngkabra http://twitter.com/ngkabra
@shrikant https://twitter.com/shrikant

Listen it on the podcast provider of your choice: https://tapthe.link/FutureIQRSS
Watch other episodes of The FutureIQ podcast: https://www.youtube.com/playlist?list=PLAppTB0r5_TaYueZ0adD42Wiw5X-wTE4v

Understand costly signaling: https://youtu.be/0YEBK7eR3Ek

Chapters:
00:00 Introduction
01:24 Supply and demand
03:00 The mismatch
07:40 How it applies IRL?
10:00 Sub divisions of supply & demand
11:05 Artificially changing supply & demand
13:17 Where does it not apply?
15:08 Black market
16:00 Uber drivers

#futureiq #supplyanddemand

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Transcript

- foreign demand is high prices can't increase what happens hi it's soil the black market it's called the black market right sorry it was a little crazy I was trying to get an Uber but unfortunately search pricing I I decided to wait because I didn't want to give in to the black beat okay so srikant then at a nightclub women are allowed free but men have to pay a cover charge right everybody understands why this is nobody thinks of that as blackmail but you think of search pricing as blackmail hold on how do those two things connect I'm talking about me not coming here because Uber search price you know so both of these are connected by a very simple Concept

1m 01s in economics called supply and demand and intuitively most people understand it but somehow they fail to apply it in real life so that's what I want to talk about today ah so today Supply today's episode is about supply and demand yes so before I explain what Uber surge pricing has to do with supply and demand let's understand the very basic concept okay okay the very basic concept is really simple that as the price of some good or service increases the demand for it is going to go down okay right so uh I mean you know economists like to draw it as a graph but I don't necessarily need and need the graph to explain it

1m 45s it's unnecessarily confusing very simple concept price increases demand goes down because some people no longer want to buy it at the higher price whereas some people don't care right so the number of people keeps on decreasing that's called the demand curve demand goes down as price goes up as you can see yeah now what happens to supply the number of people willing to sell at a price what happens to it as the price goes up uh as the price goes up more people will be willing to sell right right so in fact as the price goes up and there is like lots of profit in a particular uh service what will happen is that other

2m 25s people will see oh that's a really lucrative market and I want to enter it so they will get in and as that happens the supply increases so this is called the supply curve it is opposite of the uh demand curve okay and basically again very simple as price increases the supply goes up correct okay correct now just these two things and how they collide with each other pretty much decides so many things in life okay cost of so many things in life ok so what it means is that when the supply doesn't match the demand when the demand is too much the price is going to go up right and if the demand is too little

3m 13s and the supply is too much then the price is going to go down correct right because people are not finding buyers so they keep reducing their prices until the number of buyers increases make sense makes sense now imagine weekday morning nine o'clock and out okay so many people want to go to office is a pretty busy area in Pune just in case you are not from Pune which I'm guessing you might not be yeah so so many people want to go to office and the number of Ubers is limited because you know the divers uh don't want to get up early they want to spend time with their children who are going to school so uh

3m 53s they would prefer to come a little late so demand is high Supply is low which means that people have to wait like I had to right and how do you increase the supply remember our supply curve by uh making sure that they get more money for so that's what a company like Uber or Ola or Lyft surge pricing increase the prices so that the supply increases or the demand decreases in fact both will happen correct right as soon as there is search pricing there will be some people who say I won't give in to Blackmail and the uh those will refuse to will find some alternative but a lot of people will say you know what I have to pay this so

4m 43s uh they will use it yeah so those who are in a hurry will definitely pay the search pricing and I have nothing against them I won't I just won't yeah so but also Supply increases because suddenly the drivers see oh this is a chance to make more money so uh they will get up early and they will come over here quickly which is why I was only three five seconds late not much okay but again understand one very simple thing right this is a very dynamic system as soon as the number of drivers showing up in owned increases the supply increases correct as the supply increases and demand was also decreasing correct so as this happens

5m 26s the supply and demand have matched and there is an equilibrium of salts so at this point there is no need to increase the prices or in fact there is no need even for the earlier higher prices because now there is enough Supply so the price falls again ah so that is why I was able to get a cab at normal prices so to speak yeah but what happens is two things that I think I mean this is logical what I explained right yeah but the thing that people don't realize is that this is logical so as soon as Uber or Ola put search pricing people get angry oh they're gouging us probably not yeah I know I get it except

6m 08s there is there is a certain amount Beyond which pain is paying them doesn't make sense to me so yeah so that you are you are it's a personal preference yeah and you are part of the some number of people who are no longer willing to pay which is why the demand goes down so there's a whole bunch of other people who are willing to pay for them absolutely getting there on time is more important one more important point I want to point out is that the drivers also don't realize this is happening that when a whole bunch of them descend upon around uh the search pricing will go away and now what the drivers feel is that the

6m 46s company started search pricing just to trick us into going there and then they removed it when we reached and this is how they are exploiting us okay again I mean yes some of these cab aggregator companies are quite horrible companies and they are exploiting drivers in various ways but this is not not one of them right this isn't just simple economics in action in fact that is the key takeaway message I have for today's episode which is when you understand the basics of Economics Scott Adams says it is like having a mini superpower You can predict what is going to happen in the future which is that when Supply increases prices will fall and when

7m 25s demand increases prices will go up and people don't really pay attention I have other problems with the what Mr Adams has to say but let's start so then my question is okay fine this is for people who are driving cabs or part of the cab aggregator system but as as someone who does neither cab aggregations is applicable to everything in life okay let's take the example of an engineering degree fair enough so for example around 15 years ago uh Indian software industry was increasing by Leaps and Bounds there was a demand for software Engineers yup and they started making a good amount of money in fact much more than their parents made yeah since then okay the Indian software

8m 17s industry has grown by an order of magnitude it has okay so the demand for engineers has gone up by an order of magnitude it has what do you think has happened to the salaries of freshers in the last 15 years my counter question to that is what has now that you've explained the economics of demand and Supply what has happened to the supply of engineers in this field okay so the first thing to notice is that in 15 years the salary of freshly freshers joining the software industry at least the median has not gone up significantly at all and the reason for that is because everybody realized oh my God people are making money in software so

9m 03s everyone started joining uh csrit engineering degrees in fact everyone started creating colleges right because there was a demand for csit engineering degrees a supply of colleges happened and the supply of Engineers happened and now we have an oversupply okay so India has 16 000 seats for engineering 16 lakh sorry 16 lakh seats many orders that is oversupply yeah so only eight lakh of them actually get uh filled every year so roughly we have around seven lakh something graduates every year but the industry only needs two to three lakh are you are you trying to say that someone who is doing software engineering right now is basically wasting their career their education no not really the other part that you have

9m 57s to be careful of is supply of what okay ah supply of students with an engineering degree and decent marks is very high okay seven lakh but supply of students who can do what industry wants them to do which is the right working programs which is communicate properly uh using decent return English that is still about one lakh out of those seven lakh yeah so industry needs two to three lakhs of the latter and what it is getting is seven lakhs of the former right so there is oversupply of people with degrees but under supply of people who can actually write working programs right even if that there is a split of of of of kind of uh Supply or

10m 43s kind of material resource that is available yeah yeah so it is important to keep in mind that you have to look at what is there a shortage of okay there isn't a shortage of people with degrees there is a shortage of people who can write programs and who can communicate well right and this you can apply to everything else in life also right okay but uh this also okay so this brings me to a very weird example tell me if I'm wrong if I manage to somehow control the supply yes does that mean I can create demand well no you can't Suppose there is already Demand right there's a demand for 100 000 fancy watches huh okay like

11m 28s expensive watches 100 000 people are willing to pay five lakh rupees for a watch okay right you can create less watches right where the demand is more than the supply you can artificially limit the supply and the price can go up right so that is where this whole concept of limited edition you must have heard of ah right there is no limited edition of pav bhaji right limited edition is for expensive things so Rolex Watches or you know uh Louis Vuitton will come out with a limited edition bag and that would cost like way more than the regular Louis Vuitton bag okay I get it so by the way the beautiful bag carries the same amount of

12m 17s stuff as you know my regular bag I think there is also something called a Birkin bag that I've heard about yeah we put some links down there that's a different concept from economics or maybe psychology called uh signaling which we are we have a different episode on but let's come back to supply and demand yes please so artificially limiting the supply can cause prices uh to go up right that's where Limited Edition comes in that's where nfts come in right so in the blockchain world people have created like guaranteed limited edition because the blockchain ensures that you cannot create more copies of this and you must have heard of ridiculous prices there also yeah we've heard of many ridiculous prices

13m 04s and blockchain is a subject that Naveen is quite passionate about we'll get him to do a series of Kinds on on blockchains and nfts and all of that but uh now is there a principle is there or other is there a situation in life where this economics of supply and demand just doesn't apply so there are a lot of situations where the supply might be limited uh one example is that the government has regulations disallowing Supply right uh Indian government doesn't allow any random person to open a petrol pump wherever you want right yeah uh Indian government earlier just the economic policies were such that we couldn't manufacture enough scooters and we couldn't manufacture enough

13m 56s telephones because you know because of policies yeah and I am not making this up when I was growing up if you wanted to buy a scooter what will happen Supply is limited right and demand is high what do you think should happen I know what can happen because that happened to me with the telephone we had something called an ovit list on your telephone list and there was a long waiting list we had to wait for like months and months although that's an advanced step right really what should happen is that the prices should keep going up until the demand goes down whole bunch of people so you know what I am not paying 5 lakh for a phone uh and it'll

14m 37s still be some South Bombay types who will pay 5 lakh for a phone and supply and demand should match right but South Bombay guys are going to be brigading the comments out there you call South Bombay types and South Bombay types no no South Bombay types will say I know my neighbor is like that but there you go but the point also was that in those days we had policies which prevented increase in prices right so prices were being forced to stay constant and Supply was also being forced low then what happens right then the price doesn't increase because it is not allowed to correct so you end up with wait lists ah okay that okay always

15m 19s remember that economics will find a way right so Supply is limited demand is high prices can't increase what happens hi it's called the black market it's called the black market right we used to uh I mean when buying a scooter if somebody suddenly gets a scooter we would ask them you give extra money to someone somewhere and get it quickly right so Black Market happens and all of this started because I was three seconds late to the video three seconds later no no but come back let's talk about uh Uber right I remember when Uber first came into India right the first few uh drivers they were not first few but first six months or so the drivers were

16m 14s making like one lakh rupees per month absolute Bank I've spoken to many Uber drivers who were like all right I was I was only like in uh 60 80 000 I want to point out two things that happened okay one is that a whole bunch of Uber drivers from all over the country small towns Etc came to uh Pune Bangalore Etc where Uber existed because you know a chance at getting one lakh per month correct because uh you know price goes up the supply will come yeah and these people thought their life is going to change there were a whole bunch of people like you and me right for like intellectuals sitting there and analyzing and saying oh this is so nice

16m 57s people drivers will now finally get to make good money right anyone who understands economics should have been able to predict a very simple fact right that if the only skill required to become an Uber driver is the ability to rent a car from someone and the ability to drive a car there is really no bottleneck on the supply of drivers right yeah so you should be able to predict that the drivers will just keep increasing until the money goes down yeah which is exactly what happened and you a whole bunch of drivers came and they were surprised to find that they are making only fifteen twenty thousand why did it settle at 15 20 000

17m 46s because that's what other drivers are making elsewhere right maybe a little less they're making but they have a comfortable life they have a job as a driver which has fixed hours whereas with Uber you have to like work late uh to get the same amount of money right so the how much an Uber driver can make will settle down at an amount which is roughly or a little more than what a driver can make it does not allow you to have any other equilibrium right but that also makes me wonder whether the pendulum will swing too far away and then people will probably stop driving for these cab aggregators that's I think another question no that's a good thing about uh

18m 32s an equilibrium right if they stop driving then Uber will have to or cab aggregate the demand is there yeah they'll have to increase the prices fascinating this this Simple Theory the which is I think called the 101 of Economics so this is the most basic things even in supply and demand there's a lot of interesting tweaks uh that are there and we will cover those in future episodes future IQ yeah thank you