Class 9 Social Science Chapter 9: The Price Puzzle: What Drives the Market

The quantity of a product that buyers are willing and able to purchase at a stated price, shaped by their needs, their preferences, the season, prevailing trends and their income. A wish unsupported by the means to pay does not count.

A measure of how much one unit of a currency will buy at a particular time. It is the ability half of demand, and without it a preference never reaches the market at all.

The rule that price and quantity demanded move in opposite directions: raise the price and buyers take less, lower it and they take more. It is stated on the understanding that income, taste and the other influences stay unchanged.

A demand schedule is the table pairing each price with the quantity a buyer would take at it. Plotted with price up the vertical axis and quantity along the horizontal one, the same information becomes a demand curve, which slopes downward.

Demand is how much of a product people are willing and able to buy at a given price, given their needs, preferences, the season, trends and income. Willingness alone is not enough because demand is not merely the desire to buy something; the wish must be backed by the ability, or purchasing power, to pay for it.

When the price of a product goes up, less is demanded, and when the price comes down, more is demanded, which is an inverse relationship between price and quantity demanded. It is stated on the assumption that other factors, such as income and taste, are held constant.

A demand schedule is the table pairing each price with the quantity a buyer would take at it. The demand curve is the same information represented on a graph, with price on the y-axis and quantity on the x-axis, and it slopes downward.

She buys 1 kg at ₹150 per kg, 2 kg at ₹100 and 3 kg at ₹50. It shows individual demand, the quantity one consumer wants at different prices with other factors constant, and it illustrates the inverse relationship between price and quantity demanded.

Market demand is the total quantity of a good demanded by all potential buyers at different prices. It is obtained by summing every individual demand at each price, so that Srivalli, Alex and Israt together demand 6 kg at ₹150, 12 kg at ₹100 and 18 kg at ₹50.

Because market demand aggregates many consumers, so the same change in price produces a bigger total change in quantity. As the price drops from ₹150 to ₹50, Srivalli's demand rises by 2 kg while market demand rises by 12 kg, which makes the market curve flatter and more responsive.

Demand is how much of a product people are willing and able to buy at a given price, which turns on their needs, preferences, the season, prevailing trends and their income.

The second half of that definition matters as much as the first. Demand is not just the desire to buy something; it is willingness joined to the ability, or purchasing power, to buy it. Purchasing power is a measure of how much one unit of a currency can buy at a particular time, so a buyer who wants a good but cannot pay for it adds nothing to its demand.

The Law of Demand states that when the price of a product goes up, less is demanded, and when the price comes down, more is demanded. It brings out the inverse link between what a product or service costs and how much of it is demanded, and it assumes that other factors such as income and taste are held constant.

The chapter's example follows one consumer through a mango season. At the start the price was ₹150 per kg and Srivalli bought 1 kg. As more mangoes reached the market the price fell to ₹100 and she bought 2 kg, and when it dropped to ₹50 she bought 3 kg.

Set out as a table this is her demand schedule; drawn on a graph, with price on the y-axis and quantity on the x-axis, it becomes a downward sloping demand curve.

Individual demand is the quantity of a good that one consumer wants to buy at different prices, keeping other factors constant. Srivalli's demand is of this kind: 1 kg at ₹150, 2 kg at ₹100 and 3 kg at ₹50.

Market demand is the total quantity demanded by all potential buyers at different prices, and it is obtained by summing all the individual demands. Adding Srivalli, Alex and Israt gives 6 kg at ₹150, 12 kg at ₹100 and 18 kg at ₹50.

Plotted against the prices, these totals give the market demand curve, just as Srivalli's three points give her individual curve.

The two curves differ in shape as well as in size. The market curve is flatter, because market demand adds up many consumers, so one price change produces a bigger total change in quantity.

The arithmetic shows it plainly. When the price falls from ₹150 to ₹50, Srivalli's demand rises by 2 kg while market demand rises by 12 kg — six times the response to an identical fall in price. That greater responsiveness is exactly what a flatter curve represents.

The chapter opens with puzzles that look arbitrary. Mangoes bought last week are now half the price. Vegetables are dear in the morning and cheaper by evening. The price of onions shifts every few months. The same flight seat costs ₹3,000 one day and ₹9,000 the next, and shops announce discounts at particular times of year.

The claim is that none of this is random. Prices react to what people want, to how much is available, to the seasons, to festivals, to trends and sometimes even to rumours, and whatever the good may be, its price is settled by two forces constantly at work: demand and supply.

This topic takes the first of them. Demand is what buyers are willing and able to take at each price, and the Law of Demand states the regularity behind it: quantity demanded falls as price rises and rises as price falls.

That regularity explains one of the puzzles immediately. Mangoes are dear early in the season, so people buy in smaller quantities; as the price falls they buy more. The behaviour is not whimsical but lawlike.

Once the market's demand is understood as the sum of every buyer's, and once supply is added in later topics, the remaining puzzles become answerable too, which is why the chapter insists that a price is something to be explained rather than merely observed.

Goods whose fortunes are tied together, so that what happens to the cost or supply of one is felt at once in how much of the other is wanted. They come in two kinds: substitutes, which replace one another, and complements, which are used together.

Goods that can take each other's place, such as tea and coffee, or mangoes and bananas. When one becomes dearer, buyers replace it with the relatively cheaper alternative, so a rise in the price of a substitute increases the demand for the other good.

Goods generally used together to give the consumer satisfaction, such as smartphones and earphones, cars and petrol, or printers and cartridges. Demand for the two rises and falls together, so dearer cinema tickets reduce the popcorn sold in the hall.

The principle that the additional utility, or usefulness, drawn from a product declines as more of it is consumed. The first mango is delicious and the fourth barely wanted, and as the utility of each successive unit falls, the willingness to pay for it falls too, and demand with it.

Substitutes are goods that can replace each other, such as tea and coffee. If coffee becomes more expensive while tea's price is unchanged, coffee drinkers may switch to tea, so the demand for tea rises. The rule is that a rise in the price of a substitute increases the demand for the other related good.

Complements are goods generally used together to provide utility to the consumer, such as smartphones and earphones, or cars and petrol. Their demands move in the same direction: more printers sold means more cartridges wanted even at an unchanged price, and dearer cinema tickets mean less popcorn sold in the hall.

When household income rises, consumers can afford more or higher-quality products and feel more confident about spending, so quantity demanded rises even at unchanged prices. Taste works differently: Srivalli likes mangoes and cannot substitute them by oranges even when oranges are cheaper, so a preference can outweigh a lower price.

Size matters because a large number of buyers makes a large demand; as the most populous nation, India draws economic growth from its own consumers' demand. Composition shapes the kinds of goods wanted: more children means more sports shoes, more working adults more formal shoes, and more elderly people more comfortable or orthopaedic shoes.

Each extra unit of a product is worth less to us than the last, which is why the fourth mango holds little interest after the first. As the utility of each successive unit falls, the willingness to pay for it falls too, and so demand falls.

They shift what is bought now although nothing about the present figure has altered. Anticipating a fall, buyers hold back and today's quantity drops; anticipating a rise, they hurry and today's quantity climbs. People therefore hold off buying durables ahead of Diwali or the New Year, expecting festival discounts.

Related goods are products whose demand is interconnected, so that a change in the price or supply of one has a direct effect on demand for the other. They are of two kinds, and the two work in opposite directions.

Substitute goods can replace each other, tea and coffee being the standard pair. If the price of tea stays the same while coffee becomes more expensive, people who drink coffee may switch to tea, and the demand for tea increases. Srivalli, unable to afford mangoes at the market price, may buy bananas instead. The rule is that when the price of a good rises, buyers replace it with a relatively cheaper alternative, so a rise in the price of a substitute raises the demand for the other good.

Complementary goods are generally used together to provide utility to the consumer, such as smartphones and earphones, or cars and petrol. Here the demands move in the same direction. If the demand for printers increases, the demand for cartridges may rise too, even though the price of cartridges is unchanged.

The reverse case makes the point sharply. If cinema tickets cost more, people may stay away from films, so the demand for popcorn sold in the halls may fall, although popcorn itself is no dearer than before.

Income of the consumer comes first. When household income rises, consumers can afford to buy more or to choose higher-quality products, and higher income usually leaves people surer that they can afford to spend, so the quantity demanded of many goods goes up even when prices do not change. Taste and preference come next. Every consumer has specific tastes that determine demand, and these can outweigh a lower price: Srivalli likes mangoes and cannot substitute them by oranges even when oranges are cheaper. Population matters in both size and composition. India, being the most populous nation, has a domestic consumer demand that contributes to its economic growth. While the composition of a population shapes the kinds of goods wanted — more children means more sports shoes, more working adults more formal shoes, and more elderly people more comfortable or orthopaedic shoes. Diminishing marginal utility explains why demand falls as consumption grows. Each extra unit of a product is worth less to us than the last, so the willingness to pay for successive units falls and demand falls with it. Seasonality and future price expectations complete the list. Demand shifts across the year with weather, festivals and cultural habits, and buyers who expect prices to fall postpone purchases while those who expect a rise buy at once.

What people expect prices to do later affects demand today, even if today's prices stay put at all, which makes them a determinant of demand in their own right.

The mechanism has two directions. If consumers expect prices to fall, they postpone purchases, and present demand decreases. If they expect prices to rise, they buy immediately, and present demand increases.

The everyday illustration is the festival season. People hold off buying durables ahead of Diwali or the New Year, expecting festival discounts, which is why the weeks before a sale can be unusually quiet in the shops although nothing about today's prices has altered.

The consequence for anyone reading a market is important. A fall in sales does not by itself prove that buyers have lost interest in a good, or that its price is wrong; it may mean only that buyers are waiting.

This also connects to the chapter's larger argument. Demand does not respond to price alone. Alongside the prices of substitutes and complements, income, taste, the size and composition of the population, diminishing marginal utility and seasonality, expectations are one of the influences that can move demand while the good's own price stands perfectly still.

What sellers would both choose to bring forward and be capable of bringing forward at a stated price. Like demand it joins willingness to capacity, but it responds to price in the opposite direction: a higher price brings a larger quantity onto the market.

The rule that quantity supplied rises as price rises and falls as price falls. Two mechanisms produce it: a higher price raises profitability and so encourages existing producers to increase output, and it also draws new firms into the market.

Individual supply is the quantity a single seller offers at each price. Market supply is the sum of all the individual supplies at each price, and plotting those totals against the prices gives the market supply curve.

The graph of a supply schedule, with price measured on the vertical axis and quantity on the horizontal one. Because greater quantities accompany higher prices, the curve slopes upward — the mirror image of the demand curve.

Supply is what sellers would both choose to bring forward and be capable of bringing forward at a stated price. Under the law of supply, as price increases the quantity supplied increases, and as price decreases the quantity supplied falls.

Higher prices increase profitability, which incentivises producers to increase output. Higher prices also attract new firms to the market, so the response comes both from those already selling and from those who were not selling before.

At ₹50 per kg the seller supplies 1 kg, at ₹100 he supplies 2 kg, and at ₹150 he supplies 3 kg. This pattern of higher prices leading to a greater quantity supplied is what gives an upward sloping supply curve.

Individual supply is the quantity one particular seller offers at different prices. Market supply is the sum of all individual supplies, so sellers A, B and C offering 1, 3 and 2 kg at ₹50 give a market supply of 6 kg, and offering 3, 7 and 8 kg at ₹150 give 18 kg.

At the start of the season supply is low, which makes mangoes costly. By mid-season the supply has increased and prices fall. This shows that prices depend on the interaction between demand and supply rather than on either force alone.

When supply is less than demand, prices rise, because the quantity offered falls short of the quantity wanted. When supply exceeds demand, prices fall, because more is being offered than buyers will take.

Supply is what sellers would both choose to bring forward and be capable of bringing forward at a stated price. Like demand it joins a willingness to an ability, so an offer that cannot actually be met does not count as supply.

The law of supply states that as price increases the quantity supplied increases, and as price decreases the quantity supplied falls. This is the exact reverse of the position on the buyers' side, where a higher price brings a smaller quantity demanded.

Two reasons produce it. First, higher prices increase profitability, which incentivises producers to increase output, since the same effort now earns more. Second, higher prices attract new firms to the market, so the extra quantity comes not only from those already selling but from those who were not selling at all until the price made it worth their while.

Individual supply is what one seller offers at different prices. The chapter's seller supplies 1 kg at ₹50 per kg, 2 kg at ₹100 and 3 kg at ₹150.

This pattern of higher prices leading to a greater quantity supplied gives an upward sloping supply curve, drawn with price on the vertical axis and quantity on the horizontal one — the mirror image of the demand curve.

Market supply is the sum of all individual supplies at each price. Taking three sellers, A, B and C, and adding across each row of their schedules gives the market figures: 6 kg at ₹50, where they offer 1, 3 and 2 kg; 12 kg at ₹100, where they offer 2, 4 and 6 kg. And 18 kg at ₹150, where they offer 3, 7 and 8 kg.

Plotting those totals against the corresponding prices gives the market supply curve, exactly as plotting market demand gives the market demand curve.

The mango season shows the idea at work. At the start of the season supply is low, which makes mangoes costly. By mid-season the supply has increased and prices fall, and nobody has decided this: it follows from the quantity reaching the market.

The chapter draws the general rule from it. Prices come out of the meeting of demand and supply. If supply falls short of demand, prices go up. When supply exceeds demand, prices fall.

This is why neither force explains a price by itself. Each accounts for half of it, and the price that actually rules is settled by how the two stand in relation to each other.

The resemblance lies in the definitions. Demand is the quantity buyers are willing and able to purchase at a particular price; supply is how much sellers are willing and able to offer at a particular price. Both join a willingness to an ability, and neither counts an intention that cannot be carried out.

Both are also built up in the same way. One buyer's figures make an individual demand and one seller's an individual supply, and adding across all the participants at each price gives market demand and market supply respectively.

The difference is direction. Under the Law of Demand a higher price brings a smaller quantity demanded, so the demand curve slopes downward. Under the law of supply a higher price brings a greater quantity supplied, so the supply curve slopes upward.

The reasons differ accordingly. Buyers reduce purchases when a good becomes dearer, while sellers expand output because profitability has risen, and new firms are drawn in by the same rise.

Drawn on one pair of axes the two curves therefore run towards each other, and where they cross is the price at which the quantity wanted and the quantity offered agree — which is the subject of a later topic.

The point at which the supply of goods and services equals demand, so that there is neither excess supply, a surplus, nor excess demand, a shortage. At that point prices tend to remain stable unless external factors change, and the market is said to be cleared.

At a price below equilibrium the quantity wanted outruns the quantity offered, which is excess demand or a shortage. At a price above it the quantity offered outruns the quantity wanted, which is excess supply or a surplus. Both put pressure on the price to move.

A market whose conditions keep changing, so that any equilibrium is left behind almost as soon as it is reached. Technology, wages, interest rates, wars, political events, pandemics, weather and natural disasters all alter demand and supply, so the market is always adjusting towards a new equilibrium.

The total money a business takes in from selling goods or services, or from other operating activities, before any expenses are deducted. Hotels alter their tariffs several times a day precisely in order to earn the maximum of it.

The supply of one good depends on the profitability of the other alternatives open to the supplier. If wheat prices are low while chickpea prices are high, a farmer will grow more chickpeas in the next season, since the same field could have carried either crop.

If there are more sellers, with higher competition and increased production, the market supply would exceed the demand and prices would fall. If there are fewer sellers, supply would be lower than demand and prices would rise.

Better technology lowers the cost of production, so producers can make more and supply more. Improved techniques such as drip irrigation and weather sensors may raise crop production, and the adoption of cold storage in transporting mangoes to distant markets increases market supply.

Market equilibrium is the point where the supply of goods and services equals demand, so there is neither excess supply nor excess demand, and prices tend to remain stable unless external factors change. In the mango example the equilibrium price is ₹100 and the equilibrium quantity is 12 kg.

At ₹40 per kg, 38 kg is demanded against 6 kg supplied, so the quantity wanted outruns the quantity offered, which is excess demand or a shortage. At ₹150, 8 kg is demanded against 43 kg supplied, so the quantity offered outruns the quantity wanted, which is excess supply or a surplus.

Because markets are dynamic, with constantly changing conditions. Technology, wages, interest rates, wars, political events, pandemics, weather and natural disasters all alter demand and supply, so the market is always in the process of adjusting to a new equilibrium rather than settling at the previous one.

The price of related goods comes first. The supply of one good depends on the profitability of the other alternatives open to the supplier, so a farmer facing low wheat prices and high chickpea prices will grow more chickpeas in the next season.

The number of sellers comes second. If there are more sellers, bringing higher competition and increased production, market supply would exceed demand and prices would fall; if there are fewer, supply would be lower than demand and prices would rise.

Technology comes third. Better technology lowers the cost of production, so producers can make more and supply more. Drip irrigation and weather sensors may raise crop production, and cold storage in the transport of mangoes to distant markets increases market supply, even though it grows no extra fruit.

Future expectations come fourth. Producers expecting a boom in demand will produce more, so supply rises, while those expecting lower demand will reduce production. Potato wholesalers expecting prices to rise in the peak season may hold back supply now in order to sell later at higher prices, which lowers today's supply through a belief about tomorrow.

Any market is a bargain struck between the most a buyer will part with and the least a seller will take, so a price emerges from the two forces acting on one another.

The chapter's table records three prices for mangoes. At ₹40 per kg, 38 kg is demanded while only 6 kg is supplied. At ₹100, both figures stand at 12 kg. At ₹150, 8 kg is demanded while 43 kg is supplied.

The outer rows show disequilibrium. At the low price the quantity supplied falls short of the quantity demanded, which is excess demand, or a shortage. At the high price the quantity supplied exceeds the quantity demanded, which is excess supply, or a surplus.

The middle row is the market equilibrium, with an equilibrium price of ₹100 and an equilibrium quantity of 12 kg. Here nothing pushes prices to change and the market is cleared, meaning there is neither a shortage nor a surplus.

On a graph, equilibrium is the point E where the demand curve intersects the supply curve, and prices tend to remain stable there unless external factors change.

In theory equilibrium is an intersection point between demand and supply. In the real world markets are dynamic, with constantly changing conditions, so equilibrium is never stable: it moves all the time, and the market is forever moving towards a new equilibrium rather than fully settling at the previous one.

A long list of disturbances explains why. Technology, wages and interest rates alter the position, as do wars, political events, pandemics, weather and natural disasters.

The pandemic supplies a worked example. In 2020 the demand for face masks surged rapidly, supply took time to catch up, and mask prices went up sharply; as suppliers caught up with the higher demand, prices came down, and once the pandemic was over demand reduced further and prices returned to pre-pandemic levels. Three movements, and at no stage did the market stand still.

Hotel tariffs make the same point in miniature. A hotel in Goa may charge ₹1,500 for a room on an off-season weekday, ₹8,000 on a weekend in the tourist season and ₹25,000 on New Year's Eve, and a cancelled group booking may bring a cut of forty per cent overnight. Tariffs may change several times in a day to earn maximum revenue, depending on how fast rooms are booking, on nearby hotels' tariffs, on events in the area, on weather forecasts, on the days left before arrival and on past booking trends.

A control laid down from outside that fixes the highest figure a seller is permitted to ask for something. Governments use it for essential goods such as medicines, so that buyers are not overcharged when the market price would otherwise rise beyond reach.

A limit laid down from outside below which a price may not be taken for anything sold. A minimum wage is the standard example. A price floor works only if it is set higher than the market equilibrium price, since a limit below that level would never bind.

A market with just one seller or producer, who controls all the supply of a unique product or service and facing no close substitutes, which gives significant power to set prices and output. Such a seller may charge higher prices, restrict supply and provide poorer quality than a competitive market would.

Goods and services provided by the government for the benefit of all citizens, such as roads, bridges, parks, street lighting, national defence, sanitation and drainage. Private companies usually do not supply them because they generate no direct profit, and voluntary contribution fails because each person may rely on others to pay.

Because markets allocate goods and services on the basis of willingness and ability to pay, so if essential goods such as medicines become very expensive they will not be accessible to all. Fairness and equity in allocation are then required, above all to protect the welfare of vulnerable and low-income groups.

A price ceiling is an imposed control setting the maximum a seller may charge, used for essential goods such as medicines to prevent overcharging. A price floor is an imposed limit on how low a price may be charged, such as a minimum wage, and to work, it has to sit higher than the market equilibrium price.

A monopoly is a market structure with a single seller controlling the entire supply of a unique product facing no close substitutes, which gives significant power to set prices and output. It is regulated because it may charge higher prices, provide poorer quality and restrict supply, all of which harm consumer welfare.

Demand surged, causing stockouts and sharp price increases, with some shopkeepers hoarding and black-marketing. The government declared sanitisers essential commodities under the Essential Commodities Act, 1955, and capped the maximum retail price at ₹100 for 200 ml bottles, while many companies began production so that supply became plentiful at fair prices.

Because they do not generate direct profit, private companies usually do not supply them. If each family in a neighbourhood contributed ₹5,000 a park could be built, but many reason that if others pay they can use it without paying, so not enough is collected and the park is never built although everyone needs it.

First, price distortions with reduced producer incentives, since prices fixed below market levels leave producers with less than a free market would give. Second, compliance burdens from regulations, licences and permits, which hurt small enterprises and hamper the ease of doing business. Third, discouragement of innovation and entrepreneurship, since heavy regulation reduces the incentive to invest in new ideas or better technology.

India stands fourth among the world's economies, and it lets buyers and sellers settle prices between them while keeping a regulatory hand on the process. But markets do not always work fairly, because they allocate goods and services on the basis of willingness and ability to pay. If essential goods such as medicines become very expensive they will not be accessible to all, so fairness and equity in allocation are required, particularly for the welfare of vulnerable and low-income groups.

The government therefore curbs unfair practices to shield consumers, workers and producers from exploitation and injustice.

One instrument is the price ceiling, an imposed control setting the maximum a seller may charge. Maximum prices are set for essential goods such as medicines to prevent overcharging.

A second is the price floor, an imposed limit on how low a price may be charged. A minimum wage ensures that workers earn enough for their hard work, and for such a floor to work, it has to sit higher than the market equilibrium price.

A third concerns monopoly. Where a single seller controls the entire supply of a unique product with no close substitutes, it may charge higher prices, provide poorer quality and restrict supply, so the government keeps prices and quantity supplied in check. Regulators such as the RBI, the Central Consumer Protection Authority, TRAI and SEBI ensure transparency in their sectors.

Public goods are goods and services provided by the government for the benefit of all citizens. Roads, bridges, public parks and street lighting exist for public use; national defence guards the country against outside threats; and sanitation and drainage systems improve living conditions.

These are usually not provided by private companies, for one straightforward reason: they do not generate direct profit.

The chapter's illustration shows why voluntary provision fails too. Suppose a area needs a park. It costs a lot to build, yet many families would gain from it, and the park could be built if every family put in ₹5,000.

Yet many families may reason that if others pay, the park will be built anyway and they can enjoy it for free. With everyone reasoning so, too little money comes in, and the park never gets built, though all of them need it.

That is why goods that benefit everyone often need the government to provide or fund them, so as so as to secure social welfare, economic development and equal access to essential services. The difficulty is not that people do not want the good; it is that the benefit cannot be withheld from those who decline to pay for it.

Regulation is needed where markets are inefficient, but excessive government intervention can have adverse effects, and the chapter names three.

The first is price distortion with reduced producer incentives. If the government sets prices under market levels, producers may lose motivation to supply. Suppose a ceiling of ₹20 per kg is fixed for wheat when the market would have settled at ₹30. Farmers then earn less than a free market would pay them, so output can fall and shortages follow — exactly what the control was meant to avert.

The second is compliance burden. Intervention often requires extensive regulations, licences, permits and compliance procedures, which can hurt businesses, especially small enterprises, and hamper the ease of doing business — how easily a business can be started, run and closed in a country. A small restaurant may need multiple permissions relating to food safety, fire safety, pollution control and local clearances, and the time and money this takes can put small entrepreneurs off starting or growing.

The third is the discouragement of innovation and entrepreneurship. Heavy regulation and price controls weaken the reasons to invest in new ideas or better technology. Farmers who cannot earn adequate returns will not invest in better seeds, irrigation or technology, and that reduces long-term productivity and output.

Demand is how much of a product people are willing and able to buy at a given price, given their needs, preferences, the season, trends and income. Willingness alone is not enough because demand is not merely the desire to buy something; the wish must be backed by the ability, or purchasing power, to pay for it.

When the price of a product goes up, less is demanded, and when the price comes down, more is demanded, which is an inverse relationship between price and quantity demanded. It is stated on the assumption that other factors, such as income and taste, are held constant.

A demand schedule is the table pairing each price with the quantity a buyer would take at it. The demand curve is the same information represented on a graph, with price on the y-axis and quantity on the x-axis, and it slopes downward.

Substitutes are goods that can replace each other, such as tea and coffee. If coffee becomes more expensive while tea's price is unchanged, coffee drinkers may switch to tea, so the demand for tea rises. The rule is that a rise in the price of a substitute increases the demand for the other related good.

Complements are goods generally used together to provide utility to the consumer, such as smartphones and earphones, or cars and petrol. Their demands move in the same direction: more printers sold means more cartridges wanted even at an unchanged price, and dearer cinema tickets mean less popcorn sold in the hall.

When household income rises, consumers can afford more or higher-quality products and feel more confident about spending, so quantity demanded rises even at unchanged prices. Taste works differently: Srivalli likes mangoes and cannot substitute them by oranges even when oranges are cheaper, so a preference can outweigh a lower price.

Supply is what sellers would both choose to bring forward and be capable of bringing forward at a stated price. Under the law of supply, as price increases the quantity supplied increases, and as price decreases the quantity supplied falls.

Higher prices increase profitability, which incentivises producers to increase output. Higher prices also attract new firms to the market, so the response comes both from those already selling and from those who were not selling before.

At ₹50 per kg the seller supplies 1 kg, at ₹100 he supplies 2 kg, and at ₹150 he supplies 3 kg. This pattern of higher prices leading to a greater quantity supplied is what gives an upward sloping supply curve.

The supply of one good depends on the profitability of the other alternatives open to the supplier. If wheat prices are low while chickpea prices are high, a farmer will grow more chickpeas in the next season, since the same field could have carried either crop.