[Script Info]
Title: 
[Events]
Format: Layer, Start, End, Style, Name, MarginL, MarginR, MarginV, Effect, Text
Dialogue: 0,0:00:01.30,0:00:03.16,Default,,0000,0000,0000,,♪ [music] ♪
Dialogue: 0,0:00:11.94,0:00:13.78,Default,,0000,0000,0000,,- [Narrator] We know \Nfrom previous lessons
Dialogue: 0,0:00:13.78,0:00:16.19,Default,,0000,0000,0000,,that the demand curve \Nand the supply curve show
Dialogue: 0,0:00:16.19,0:00:19.57,Default,,0000,0000,0000,,how buyers and sellers \Nrespectively respond to changes
Dialogue: 0,0:00:19.57,0:00:21.14,Default,,0000,0000,0000,,in the price of a good.
Dialogue: 0,0:00:21.14,0:00:23.67,Default,,0000,0000,0000,,In this lesson, we'll show you \Nhow the interactions
Dialogue: 0,0:00:23.68,0:00:26.20,Default,,0000,0000,0000,,of buyers and sellers\Ndetermine the price.
Dialogue: 0,0:00:26.78,0:00:28.32,Default,,0000,0000,0000,,Let's start with the punch line.
Dialogue: 0,0:00:28.32,0:00:31.39,Default,,0000,0000,0000,,The equilibrium price is the price \Nwhere the quantity demanded
Dialogue: 0,0:00:31.39,0:00:33.91,Default,,0000,0000,0000,,is equal to the quantity supplied,
Dialogue: 0,0:00:34.14,0:00:37.77,Default,,0000,0000,0000,,right here, and this is \Nthe equilibrium quantity.
Dialogue: 0,0:00:37.93,0:00:39.77,Default,,0000,0000,0000,,Why is this the equilibrium price?
Dialogue: 0,0:00:39.77,0:00:43.39,Default,,0000,0000,0000,,At any other price, forces are put \Ninto play that will push
Dialogue: 0,0:00:43.39,0:00:45.94,Default,,0000,0000,0000,,the price towards \Nthe equilibrium price.
Dialogue: 0,0:00:46.14,0:00:48.97,Default,,0000,0000,0000,,It's kind of like a ball in a bowl, \Nwhere the ball always
Dialogue: 0,0:00:48.97,0:00:51.05,Default,,0000,0000,0000,,returns to one stable position.
Dialogue: 0,0:00:51.05,0:00:53.19,Default,,0000,0000,0000,,The equilibrium price is\Nthe only place
Dialogue: 0,0:00:53.19,0:00:54.82,Default,,0000,0000,0000,,where the price is stable.
Dialogue: 0,0:00:55.19,0:00:57.60,Default,,0000,0000,0000,,To see why, the first thing \Nto understand is
Dialogue: 0,0:00:57.60,0:01:00.18,Default,,0000,0000,0000,,that buyers don't \Ncompete against sellers.
Dialogue: 0,0:01:00.55,0:01:03.03,Default,,0000,0000,0000,,Buyers compete \Nagainst other buyers.
Dialogue: 0,0:01:03.42,0:01:07.23,Default,,0000,0000,0000,,A buyer obtains goods by bidding \Nhigher than other buyers.
Dialogue: 0,0:01:07.55,0:01:09.82,Default,,0000,0000,0000,,And sellers compete \Nagainst other sellers
Dialogue: 0,0:01:09.82,0:01:12.06,Default,,0000,0000,0000,,by offering \Nto sell at lower prices.
Dialogue: 0,0:01:12.06,0:01:15.33,Default,,0000,0000,0000,,Think about it -- at an auction,\Nthe buyer with the highest bid
Dialogue: 0,0:01:15.33,0:01:19.33,Default,,0000,0000,0000,,gets the item, and the seller with \Nthe lowest price makes the sale.
Dialogue: 0,0:01:20.70,0:01:24.45,Default,,0000,0000,0000,,So let's say the price of oil is \Ncurrently 50 bucks a barrel --
Dialogue: 0,0:01:24.45,0:01:27.30,Default,,0000,0000,0000,,that's above the equilibrium \Nprice of $30 a barrel.
Dialogue: 0,0:01:27.40,0:01:32.05,Default,,0000,0000,0000,,At $50, the quantity supplied is \Nmore than the quantity demanded
Dialogue: 0,0:01:32.05,0:01:35.81,Default,,0000,0000,0000,,so we say there is a surplus.\NSo what happens?
Dialogue: 0,0:01:35.83,0:01:37.75,Default,,0000,0000,0000,,It's sale time!\N[party noisemakers]
Dialogue: 0,0:01:37.75,0:01:40.13,Default,,0000,0000,0000,,When there's a surplus, \Nsellers can't sell as much
Dialogue: 0,0:01:40.13,0:01:42.07,Default,,0000,0000,0000,,as they would like to \Nat the going price
Dialogue: 0,0:01:42.07,0:01:45.12,Default,,0000,0000,0000,,so sellers have an incentive \Nto lower their price a little bit
Dialogue: 0,0:01:45.12,0:01:47.87,Default,,0000,0000,0000,,so they could outcompete \Nother sellers and sell more.
Dialogue: 0,0:01:47.88,0:01:50.87,Default,,0000,0000,0000,,The price will continue to fall \Nuntil the quantity demanded is
Dialogue: 0,0:01:50.87,0:01:54.45,Default,,0000,0000,0000,,equal to the quantity supplied,\Nand equilibrium is reached.
Dialogue: 0,0:01:54.59,0:01:57.74,Default,,0000,0000,0000,,Now let's say the price is less \Nthan the equilibrium price,
Dialogue: 0,0:01:57.74,0:01:59.62,Default,,0000,0000,0000,,say 15 bucks a barrel.
Dialogue: 0,0:01:59.81,0:02:03.08,Default,,0000,0000,0000,,At 15 bucks a barrel, \Nthe quantity demanded exceeds
Dialogue: 0,0:02:03.08,0:02:05.64,Default,,0000,0000,0000,,the quantity supplied, a shortage.
Dialogue: 0,0:02:05.76,0:02:07.08,Default,,0000,0000,0000,,And what happens now?
Dialogue: 0,0:02:07.08,0:02:09.20,Default,,0000,0000,0000,,When there's a shortage, \Nbuyers can't get as much
Dialogue: 0,0:02:09.20,0:02:11.99,Default,,0000,0000,0000,,of the good as they want \Nat the going price so they compete
Dialogue: 0,0:02:11.99,0:02:14.17,Default,,0000,0000,0000,,to buy more \Nby bidding up the price.
Dialogue: 0,0:02:14.26,0:02:16.20,Default,,0000,0000,0000,,Now since buyers are easy to find,
Dialogue: 0,0:02:16.20,0:02:19.33,Default,,0000,0000,0000,,sellers also have an incentive \Nto raise the price.
Dialogue: 0,0:02:19.65,0:02:23.17,Default,,0000,0000,0000,,The price will continue to rise\Nuntil quantity demanded is equal
Dialogue: 0,0:02:23.19,0:02:25.69,Default,,0000,0000,0000,,to the quantity supplied\Nand equilibrium is reached.
Dialogue: 0,0:02:25.98,0:02:28.99,Default,,0000,0000,0000,,At any price other \Nthan the equilibrium price,
Dialogue: 0,0:02:28.99,0:02:31.81,Default,,0000,0000,0000,,the incentives of the buyers \Nand sellers push the price
Dialogue: 0,0:02:31.81,0:02:33.82,Default,,0000,0000,0000,,towards the equilibrium price.
Dialogue: 0,0:02:33.82,0:02:36.43,Default,,0000,0000,0000,,Only the equilibrium \Nprice is stable.
Dialogue: 0,0:02:36.70,0:02:39.38,Default,,0000,0000,0000,,Now let's take a deeper look \Nat the market equilibrium
Dialogue: 0,0:02:39.38,0:02:40.88,Default,,0000,0000,0000,,and some of its properties.
Dialogue: 0,0:02:40.88,0:02:43.84,Default,,0000,0000,0000,,Remember that there are\Nmany different users of oil
Dialogue: 0,0:02:43.85,0:02:45.41,Default,,0000,0000,0000,,and many different uses for oil,
Dialogue: 0,0:02:45.41,0:02:47.97,Default,,0000,0000,0000,,each with substitutes, \Nalternatives, and values.
Dialogue: 0,0:02:48.07,0:02:51.45,Default,,0000,0000,0000,,At any specific price of oil,\Nthere's a group of buyers
Dialogue: 0,0:02:51.45,0:02:55.40,Default,,0000,0000,0000,,who value oil enough \Nto demand it at that price.
Dialogue: 0,0:02:55.70,0:02:59.21,Default,,0000,0000,0000,,And as the price changes, \Nso do the buyers and their uses.
Dialogue: 0,0:02:59.29,0:03:02.92,Default,,0000,0000,0000,,On the supply side, at each price \Non the supply curve, we're looking
Dialogue: 0,0:03:02.92,0:03:06.38,Default,,0000,0000,0000,,at a group of suppliers whose cost \Nof extraction is low enough
Dialogue: 0,0:03:06.38,0:03:08.55,Default,,0000,0000,0000,,to be profitable at that price.
Dialogue: 0,0:03:09.42,0:03:14.02,Default,,0000,0000,0000,,At the equilibrium price, these \Nhigher value groups are the buyers,
Dialogue: 0,0:03:14.02,0:03:16.96,Default,,0000,0000,0000,,and these lower value groups\Nare the non-buyers.
Dialogue: 0,0:03:16.96,0:03:18.12,Default,,0000,0000,0000,,[toy squeak]
Dialogue: 0,0:03:19.19,0:03:21.49,Default,,0000,0000,0000,,Also notice that every seller has
Dialogue: 0,0:03:21.49,0:03:24.38,Default,,0000,0000,0000,,lower cost than any \Nof the non-sellers.
Dialogue: 0,0:03:28.24,0:03:31.06,Default,,0000,0000,0000,,Since the buyers \Nwith the highest values buy,
Dialogue: 0,0:03:31.06,0:03:33.28,Default,,0000,0000,0000,,and the sellers \Nwith the lowest cost sell,
Dialogue: 0,0:03:33.30,0:03:36.16,Default,,0000,0000,0000,,the gain from trade -- \Nthe difference between
Dialogue: 0,0:03:36.16,0:03:39.71,Default,,0000,0000,0000,,the value a good creates \Nand its cost -- is maximized.
Dialogue: 0,0:03:40.06,0:03:42.86,Default,,0000,0000,0000,,In addition, at the equilibrium \Nquantity, every trade that can
Dialogue: 0,0:03:42.86,0:03:46.77,Default,,0000,0000,0000,,generate value does generate value \Nup until the very last trade
Dialogue: 0,0:03:46.77,0:03:50.55,Default,,0000,0000,0000,,where the value to buyers is \Njust equal to the cost to sellers.
Dialogue: 0,0:03:50.55,0:03:52.01,Default,,0000,0000,0000,,- [low voice] Yeah!
Dialogue: 0,0:03:52.01,0:03:53.34,Default,,0000,0000,0000,,- [Narrator] In a free market,
Dialogue: 0,0:03:53.35,0:03:55.40,Default,,0000,0000,0000,,there are no unexploited \Ngains from trade,
Dialogue: 0,0:03:55.40,0:03:57.62,Default,,0000,0000,0000,,and there are no wasteful trades.
Dialogue: 0,0:03:57.62,0:03:59.71,Default,,0000,0000,0000,,If the quantity exchanged \Nwere greater than
Dialogue: 0,0:03:59.71,0:04:01.42,Default,,0000,0000,0000,,the equilibrium quantity, \Nfor example,
Dialogue: 0,0:04:01.42,0:04:03.84,Default,,0000,0000,0000,,we would be drilling \Ndeep and expensive oil wells
Dialogue: 0,0:04:03.84,0:04:07.25,Default,,0000,0000,0000,,just to produce more rubber duckies, \Nand that would be wasteful.\N
Dialogue: 0,0:04:07.25,0:04:08.63,Default,,0000,0000,0000,,- [whiny voice] Oh no!
Dialogue: 0,0:04:08.64,0:04:10.87,Default,,0000,0000,0000,,- [Narrator] In a free market, \Nbuyers and sellers acting
Dialogue: 0,0:04:10.87,0:04:14.03,Default,,0000,0000,0000,,in their own self interest \Nend up at a price and quantity \N
Dialogue: 0,0:04:14.03,0:04:17.76,Default,,0000,0000,0000,,that allocates oil\Nto the highest value buyers
Dialogue: 0,0:04:17.76,0:04:21.99,Default,,0000,0000,0000,,produced by the lowest cost sellers \Nin a way that maximizes
Dialogue: 0,0:04:21.99,0:04:25.78,Default,,0000,0000,0000,,the gains from trade -- the sum of\Nthe benefits to buyers and sellers.
Dialogue: 0,0:04:25.78,0:04:27.00,Default,,0000,0000,0000,,[crowd cheering]
Dialogue: 0,0:04:27.00,0:04:29.47,Default,,0000,0000,0000,,This is one of the reasons \NAdam Smith said that
Dialogue: 0,0:04:29.49,0:04:31.99,Default,,0000,0000,0000,,the market process works \Nlike an invisible hand
Dialogue: 0,0:04:31.99,0:04:34.08,Default,,0000,0000,0000,,to promote the social good.
Dialogue: 0,0:04:35.67,0:04:38.89,Default,,0000,0000,0000,,- [Narrator] If you want to test \Nyourself, click "Practice Questions."
Dialogue: 0,0:04:39.41,0:04:42.80,Default,,0000,0000,0000,,Or, if you're ready to move on,\Njust click "Next Video."
Dialogue: 0,0:04:43.60,0:04:45.27,Default,,0000,0000,0000,,♪ [music] ♪