It's all about operations management.

1. Supply Analysis

2. Discussion on Current News

3. German luxury carmaker BMW aims double-digit
growth in sales in India
 We are going to launch 24 products across all three brands
(BMW, MINI, Motorrad). Demand is there,” BMW Group
India president Vikram Pawah told ET. “While the final
growth numbers will depend on the business environment.
 In India, the demand for electric vehicles has been robust
and BMW India could sell the allocated batches of SUV iX
and an all-electric MINI. Its third EV--luxury sedan i4--will
hit the road next month.
25 electric vehicles
 Globally, BMW is set to introduce by
2023. Nearly half of them–the full electric ones
launched in India, said Pawah, provided the
–can be
current
incentives continue and adequate charging infrastructure is
set up across the country.

4.  At present, the government levies GST on electric
vehicles at a reduced rate of 5%. The tax concession
needs to be continued to encourage consumers to
transition, and for automakers to plan more products.
In a bid to penetrate deeper into the fast-growing
electric vehicle space. The project is focused on urban
mobility and aimed at a younger customer group. The
first product on the platform is likely to be ready
within the next two years.

5. Learning Outcomes
• To discuss the effects of the various determinants on
supply function.
• To discuss the causes of change in supply.

6. Supply
• Indicates the quantities of a good or service that the
seller is willing and able to provide at a price, at a given
point of time, other things remaining the same.
• Supply of a product X (Sx) depends upon:
– Price of the product (Px)
– Cost of production (C)
– State of technology (T)
– Government policy regarding taxes and subsidies (G)
– Other factors like number of firms (N)
• Hence the supply function is given as:
Sx = (Px, C, T, G, N)

7. Law of Supply
 Law of Supply states that other things remaining the same, the
higher the price of a commodity the greater is the quantity supplied.
 Price of the product is revenue to the supplier; therefore higher price
means greater revenue to the supplier and hence greater is the
incentive to supply.
 Supply bears a positive relation to the price of the commodity.
Point on
Supply
Curve
Price
(Rs. Per
cup)
Supply (‘000
cups per
month)
a 15 10
b 20 20
c 25 30
d 30 45
e 35 60
Supply Schedule
c
e
d
Supply Curve
10 20 30 40 50 60
20
15
35
30
25
Quantity of Coffee
0
b
a

8. Change in Supply
S2
S1
S0
Price
Quantity
O
 Shift in the supply curve from
S0 to S1
 More is supplied at each
price (Q1>Q0)
 Increase in supply caused by:
 Improvements in the
technology
 Fall in the price of inputs
 Shift in the supply curve from
S0 to S2
 Less is supplied at each
price (Q2<Q0)
 Decrease in supply caused by:
 A rise in the price of inputs
 Change in government
policy (VAT)
Q2
P
Q0 Q1

9. Market Equilibrium
D
 Equilibrium occurs at the price where the quantity demanded and
the quantity supplied are equal to each other.
 At point E demand is equal to supply hence 25 is equilibrium price
Price
S
Quantity
O
25
E
30
Price
(Rs)
Supply
(‘000 cups/
month)
Demand
(‘000 cups/
month)
15 10 50
20 15 40
25 30 30
30 45 15
35 70 10

10. Let’s Analyze
Imagine that there is a drought in the nation. Discuss the
possible implications of drought on the demand and
supply of food grains in the nation.

11. Let’s Analyze
Suggest the impact of a liberal monetary policy on supply
of the goods in an economy.

12. Market Equilibrium
Quantity
O
30
Price
(Rs)
Supply
(‘000 cups/
month)
Demand
(‘000 cups/
month)
15 10 50
20 15 40
25 30 30
30 45 15
35 70 10
 For prices below the equilibrium, Quantity demanded exceeds
quantity supplied (D>S)
– Price pulled upward
 For prices above the equilibrium, Quantity demanded is less than
quantity supplied (D<S)
– Price pulled downward.
 At point E demand is equal to supply hence 25 is equilibrium price.
Price
S
30
E
25
20
D

13. Changes in Market Equilibrium
(Shifts in Supply Curve)
E2
S2
S2
E
D1
D1
S1
S1
Price
Quantity
O
E0
P0
P
P2
Q0 Q Q2
S0
S0

14. Q1
E1
D2
Q*
E2
Changes in Market Equilibrium
(Shifts in Demand Curve)
D0
D1
D0
D1
S1
S1
Price
D2
Quantity
O
E
P1
P
P*
Q

15. Change in Both Demand and Supply
P2
Q2
E2
S2
D1
D1
Quantity
Price
O
S1
S2
S1
D2
D2
Q1
P1 E1
D2
D2
E0

16. Elasticity of Demand
• Mathematically, it is the percentage change in
quantity demanded of a commodity to a percentage
change in any of the (independent) variables that
determine demand for the commodity.
• Four major types of elasticity:
– Price elasticity,
– Income elasticity,
– Cross elasticity
– Advertising (or promotional) elasticity.

17. Price Elasticity of Demand
•Price elasticity of demand means the sensitivity of
quantity demanded of a commodity to a given
change in its own price.

18. Slope of demand curve is used to display
price elasticity of demand
Perfectly elastic demand
• ep=∞ (in absolute terms).
• Horizontal demand curve
• Unlimited quantities of the commodity can
be sold at the prevailing price
• A negligible increase in price would result
in zero quantity demanded
• Perfectly inelastic demand
• The other extreme of the elasticity range
• ep=0 (in absolute terms)
• Vertical demand curve
• Quantity demanded of a commodity
remains the same, irrespective of any
change in the price
• Such goods are termed neutral.
Degrees of Price Elasticity
Price
Quantity
O
P D
Q1
Q2
Price
Quantity
O
P1
P2
D
Q1

19. Degrees of Price Elasticity
Highly elastic demand
• Proportionate change in quantity
demanded is more than a given change
in price
• ep >1 (in absolute terms)
• Demand curve is flatter
Unitary elastic demand
• Proportionate change in price brings
about an equal proportionate change in
quantity demanded
p
• e =1 (in absolute terms).
• Demand curves are shaped like a
rectangular hyperbola, asymptotic to the
axes
Relatively inelastic demand
• Proportionate change in quantity
demanded is less than a proportionate
change in price
p
• e <1 (in absolute terms)
• Demand curve is steep
Price
O
D
D
Q2 Quantity
Q1
P1
P2
Quantity
Price D
O
D
P1
Q1 Q2
P2
Price
Quantity
O
P1
P2
Q1 Q2
D
D
Contd.

20. • Nature of commodity
• Availability and proximity of substitutes
• Alternative uses of the commodity
• Proportion of income spent on the commodity
• Time
• Durability of the commodity
• Items of addiction
Determinants of Price Elasticity of
Demand

21. Income Elasticity of Demand (ey)
• ey measures the degree of responsiveness of demand
for a good to a given change in income, ceteris paribus.
• Degrees:
– Positive income elasticity
• Demand rises as income rises and vice versa
• Normal good
– Negative income elasticity
• Demand falls as income rises and vice versa
• Inferior good
Proportionate change in income of consumer
=
Proportionate change in quantity demanded of commodity X
ey

22. Cross Elasticity of Demand
• ec measures the responsiveness of demand of
one good to changes in the price of a related
good
• Degrees
– Negative Cross Elasticity
• Complementary goods
– Positive Cross Elasticity
• Substitute goods
Proportionate change in price of commodity Y
=
Proportionate change in quantity demanded of commodity X
ec

23. • Degrees
– Zero Cross Elasticity

24. Promotional Elasticity of Demand
• Advertising (or promotional) elasticity of demand (ea) measures the
effect of incurring an “expenditure” on advertising, vis-à-vis an
increase in demand, ceteris paribus.
• Some goods (like consumer goods) are more responsive to
advertising than others (like heavy capital equipments).
• Degrees
– ea>1
• Firm should go for heavy expenditure on advertisement.
– ea <1
• Firm should not spend too much on advertisement
Proportionate change in advertising expenditure
=
Proportionate changein quantity demanded (or sales) of commodity X
ea

25. Importance of Elasticity
• Determination of price
• Basis of price discrimination
• Determination of rewards of factors of production
• Government policies of taxation

26. Thank You