Q1.
Consumers prefer to buy refrigerators that use less electricity. When a large number of consumers begin to ask for refrigerators that use less electricity, what do you think happens in the network you saw in Fig. 12.11?
Answer
The demand travels backwards along the chain of Fig. 12.11 — from the last box to the first — and every link changes what it does.
Consumers ask retailers for 5-star, low-electricity models
↑ Retailers see those models sell out and the old ones sit unsold; they order more of them
↑ Mandīs / wholesale markets and distributors pass the order on
↑ Wholesalers — whose job is to “assess how much product is required by retailers” — buy fewer old models and more efficient ones
↑ Producers get the signal about what consumers would buy and redesign their refrigerators
↑ They order different inputs / raw materials — better compressors, thicker insulation, improved motors
→ Energy-efficient refrigerators fill the market
↑ Retailers see those models sell out and the old ones sit unsold; they order more of them
↑ Mandīs / wholesale markets and distributors pass the order on
↑ Wholesalers — whose job is to “assess how much product is required by retailers” — buy fewer old models and more efficient ones
↑ Producers get the signal about what consumers would buy and redesign their refrigerators
↑ They order different inputs / raw materials — better compressors, thicker insulation, improved motors
→ Energy-efficient refrigerators fill the market
What follows:
- Producers who do not change lose sales; those who do, gain. Competition pushes efficiency up further, and the BEE Star rating on the box becomes a selling point.
- Consumers gain twice — the appliance costs less to run, so the electricity bill falls.
- Society gains: less electricity used means less coal burnt, less pollution, and less pressure on power stations. The chapter calls this exactly that — “This benefits society through the production of energy-efficient refrigerators.”
Why it happens: nobody ordered the factory to build a better refrigerator. The purchase decisions of ordinary buyers acted as a message, and the supply chain carried that message from the shop counter all the way back to the design table. This is how markets can serve society even though every person in the chain is only looking after their own interest.
Try this: look at the star label on the refrigerator at home. Every extra star means a real saving — a 5-star model can use roughly a third less electricity than a 2-star one of the same size.