Demand- Supply Maintaining the Economics System

In microeconomics, supply and demand is an economic model of price determination in a market. It concludes that in a competitive market, the price for a particular good will vary until it settles at a point where the quantity demanded by consumers will equal the quantity supplied by producers, resulting in an economic equilibrium for price and quantity.

The four basic laws of supply and demand are:

1.     If demand increases and supply remains unchanged, a shortage occurs, leading to a higher equilibrium price.

2.     If demand decreases and supply remains unchanged, a surplus occurs, leading to a lower equilibrium price.

3.     If demand remains unchanged and supply increases, a surplus occurs, leading to a lower equilibrium price.

4.     If demand remains unchanged and supply decreases, a shortage occurs, leading to a higher equilibrium price.

In economics, supply is the amounts of some product producers are willing and able to sell at a given price all other factors being held constant. Demand is the desire to own anything, the ability to pay for it, and the willingness to pay. Price and demand almost always have an inverse relationship. As the price of a good goes up, the demand goes down. There are many factors other than price that influence demand. Some examples are tastes and preferences, disposable income, and the price of relate goods.

Generally, if there is a low supply and a high demand, the price will be high. In contrast, the greater the supply and the lower the demand, the lower the price will be.

 

Equilibrium: Where Supply Meets Demand

Equilibrium is the point where the quantity demanded equals the quantity supplied. This means that there's no surplus of goods and no shortage of goods. A shortage occurs when demand is greater than supply; in other words, when the price is too low. A surplus occurs when the price is too high, and therefore consumers don't want to buy the product.

For example, at 70Rs. per liter, consumer demand exceeds supply, and there's a shortage of petrol in the market. Shortages tend to drive up the price, because consumers compete to purchase the product. However, when prices go up too much, demand decreases, even though the supply may be available. Consumers may start to purchase substitute products, or they simply may not purchase anything. This creates a surplus. To eliminate the surplus, the price goes down and consumers start buying again. In this manner, equilibrium is usually maintained quite efficiently.

Difference between Microeconomics and Macroeconomics

Macroeconomics comes from the Greek word makro- meaning “large.” It is a branch of economics dealing with the performance, structure, behaviour, and decision-making of an economy as a whole, rather than individual markets. This includes national, regional, and global economies. With microeconomics, macroeconomics is one of the two most general fields in economics. Macroeconomists study aggregated indicators such as GDP (Gross Domestic Product), unemployment rates, and price indices to understand how the whole economy functions. Macroeconomists develop models that explain the relationship between such factors as national income, output, consumption, unemployment, inflation, savings, investment, international trade and international finance. In contrast, microeconomics is primarily focused on the actions of individual agents, such as firms and consumers, and how their behaviour determines prices and quantities in specific markets.

Macroeconomics is focused on the movement and trends in the economy as a whole, while in microeconomics the focus is placed on factors that affect the decisions made by firms and individuals. The factors that are studied by macro and micro will often influence each other, such as the current level of unemployment in the economy as a whole will affect the supply of workers which an oil company can hire from, for example.

Microeconomics comes from Greek word mikro- meaning ‘small.’ It is a branch of economics that studies the behaviour of individual households and firms in making decisions on the allocation of limited resources.Typically, it applies to markets where goods or services are bought and sold. Microeconomics examines how these decisions and behaviours affect the supply and demand for goods and services, which determines prices, and how prices, in turn, determine the quantity supplied and quantity demanded of goods and services.

This is in contrast to macroeconomics, which involves the ‘sum total of economic activity, dealing with the issues of growth, inflation, and unemployment.’  

Microeconomics is generally the study of individuals and business decisions; macroeconomics looks at higher up country and government decisions. Microeconomics is the study of decisions that people and businesses make regarding the allocation of resources and prices of goods and services. This means also taking into account taxes and regulations created by governments. Microeconomics focuses on supply and demand and other forces that determine the price levels seen in the economy. For example, microeconomics would look at how a specific company could maximize its production and capacity so it could lower prices and better compete in its industry.   For example, macroeconomics would look at how an increase/decrease in net exports would affect a nation's capital account or how GDP would be affected by unemployment rate.

While these two studies of economics appear to be different, they are actually interdependent and complement one another since there are many overlapping issues between the two fields. For example, increased inflation (macro effect) would cause the price of raw materials to increase for companies and in turn affect the end product's price charged to the public.

The bottom line is that microeconomics takes a bottoms-up approach to analyzing the economy while macroeconomics takes a top-down approach. Regardless, both micro- and macroeconomics provide fundamental tools for any finance professional and should be studied together in order to fully understand how companies operate and earn revenues and thus, how an entire economy is managed and sustained. 

Market for Music in India

The internet is known for the convenience and comfort it brings at our fingertips. Be it shopping, travel, insurance or food, the web empowers us to do all these things with a simple click. While online shopping is just taking off in India, online music distribution has been around for some time and has grown over the past 5 years. Digital consumption, distribution and availability of the catalogue in the digital space are only a logical progression and evolution of the Indian music market. Film music, including Bollywood and regional film music, accounts for 67% of music sales in India. Film producers typically create an album for a film and license the exploitation rights to a music company. The acquisition costs for these music rights can be prohibitive and are typically 25% to 30% of a film’s total cost. Music companies bear the entire risk for an album’s success, which is closely linked to the film’s success. Because of the dominance of film music, the Indian music industry is less focused on developing stand-alone artists than in other countries. Music companies have diversified into film production, edutainment content for children and non-fi lm music. They are also entering into artist management to increase non-film music revenues and are exploring the concert promotion business to meet a growing demand for live entertainment.

Already being touted as the “iTunes of India”, Flipkart's “Flyte” platform launched in February offers users the option of legally downloading songs for as little as Rs 6 a track while albums are available for download starting at Rs 25. What's more is that these downloads are Digital Right Management free implying that there are no access related restrictions on the use of digital content after purchase and one can download and play it on Winamp, Wndows Media Player, iTunes, PC or home theatre system and so on. Though Flyte has widened the pool of choice for music lovers to get their music online, it remains to be seen how the site will manage to fob off fierce competition from free online streaming sites, pirated music download portals as well as the throbbing mobile music download segment even as it hopes that its “easy-to-buy-music-at-attractive-price-point” strategy will help convert the freeloader mindset to the willing-to-pay category.

Online streaming music portals for Indian music such as gaana.com, dhingana.com and saavn.com are some of the popular players in this space in India.  In 2011, the Indian music industry achieved a 19 per cent year-on-year decline in sales of physical music which was compensated by a significant jump of 24 per cent year-on-year in digital music consumed, according to a FICCI-KPMG Indian Media and Entertainment Industry Report 2012. However, interestingly 90 per cent of the total digital music sales have come from the mobile segment. Last year also provided users viable options of music consumption through different digital platforms such as pay per download, unlimited music streaming and subscription based music services. With the emergence of these digital platforms and greater channels of music discovery, exposure to newer genres of music is also picking up, nurturing demand for non-film genres such as devotional and classical songs, though there's still a long way to go, believe some users.

Apart from technological innovation, creativity and innovation in packaging and marketing is also gaining centre stage for these music websites in a bid to stay in the game. For instance, the website iMusti.com is offering an “advertisement free musical experience for 7 days” by signing up or login in through Facebook followed by a paid model if the customer wishes to continue.

According to a FICCI-KPMG Indian Media and Entertainment Industry Report 2012, the Indian music industry achieved a 19 % year-on-year decline in sales of physical music which was compensated by a significant jump of 24 % year-on-year in digital music consumed last year. Physical sales of music continue to slide with digital music consumption on a steady rise. This phenomenon was more pronounced in the urban centres where mobile and Internet penetration is higher; however regional markets were less affected.

In India, the idea of online music started gaining a foothold around 2006-07, when music companies such as Saregama HMV, T Series and Sony BMG started digitizing their tracks, the online music market also started growing. During 2007, Saregama forayed into Hindi music download business with competitive price tag of Rs.10 per track download. In April 2008, Motorola attempted to tap the delivery of music content on the Internet and mobile through acquisition of Asian online and mobile firm- Soundbuzz. However,Motorola closed down its Soundbuzz’s business within a year (May 2009). Meanwhile, illegal- free downloads of music continued on large scale through various sites and choked the growth of early entrants like Saregama. Later in October 2010, Hungama Digital had launched music download service, and recently Flipkart’s Flyte went live. Others such as imusti, Saavn, Gaana, Dhingana, Hungama and NH7, have joined the streaming league recently.

Consumption of online music has seen consistent growth during the last 2-3 years and mobile presents itself as an even more exciting domain, which has grown incredibly well. The explosion of smartphones and high speed 2G and 3G connections in urban markets has largely contributed to this. According to a survey by Neilsen released in June this year, there are 27 Million Smartphone users in Urban India across 1 lakh+ towns. Currently, mobile contributes around 85-90 % to the total digital music consumption in India.

In download businesses, besides  bandwidth constraints, unavailability of micro-payment tools is a big challenge, typically to enable a song download from Flyte or Hungama, consumers need to pay around Rs.10-15. And to pay such small amount it is unlikely that consumer would use his/her credit or debit card. However, emergence of mobile based IMPS payment could solve this payment hassle to some extent.

Review on Media Economics: Theory and Practice

I am not a fan of Economics. I hate to read even a shortest of all paragraphs on economics. This review came out of the blue. Well, to be honest, it evolved for college credits. The book reviewed is called Media Economics: Theory and Practice. This book is part of my master’s curriculum so the whole and sole reason for reading this book is that it will help me gain my ultimate credits. However, this book focuses on the basic principles of economics in the business sector and applies them to contemporary media industries. The book involves key topics, such as industrial restructuring, regulatory constraints upon media operations, and changing economic value, providing key insights into media business activities. With the structure and value of media industries changing rapidly and sometimes dramatically, this book moves beyond a basic documentation of historical patterns to help readers understand the mechanics of change, offering insight into the processes reproducing contemporary trends in media economics. Thoroughly updated in this third edition, Media Economics focuses on the primary concerns of media economics, the techniques of economic and business analysis, and the overall characteristics of the media environment; and explores contemporary business practices within specific media industries, including newspaper, magazine, television, cable, movie, radio advertising, music, and online industries. New for this edition are chapters on the advertising, book publishing, and magazine publishing industries. Chapters contributed by expert scholars and researchers provide substantial discussions of the crucial topics and issues in the media industry sectors, and emphasize both domestic and international businesses.

Offering a thorough examination of the economic factors and forces concerning the media industries, Media Economics is appropriate for use as a course text for advanced media management and economics students. All in all it is a good read only if it guides you in your thesis paper or if your college credits won’t move ahead without this book. So it’s definitely a must read to the entire media economics study related crowd.