0:00:00.590,0:00:05.550 What I want to do in this video is how supply and / or demand might change 0:00:05.650,0:00:08.590 based on changes on some factors of the market 0:00:08.700,0:00:14.580 and then think about what that might do to the equilibrium price and equilibrium quantity. 0:00:14.900,0:00:19.210 So let's say at some period, this is what the supply curve looks like, 0:00:19.210,0:00:21.320 and this is what the demand looks like 0:00:21.400,0:00:23.310 and then all of a sudden this thing happens. 0:00:23.330,0:00:28.910 A new disease resistant apple is invented what's likely to happen for the next period? 0:00:29.360,0:00:32.280 Well a new disease resistant apple being invented, 0:00:32.330,0:00:36.630 this is something that clearly impacts the growers and clearly impacts the suppliers. 0:00:36.630,0:00:40.520 All of a sudden you'll have fewer apples vulnerable to disease 0:00:40.520,0:00:42.910 and so they will be able to produce more apples, 0:00:42.910,0:00:55.930 so at any given price point this will shift the quantity of apples supplied up, 0:00:55.930,0:01:05.590 or you could say that entire supply curve is shifted to the right or supply goes up, 0:01:05.610,0:01:08.220 and obviously, if now we have disease resistant apples 0:01:08.220,0:01:11.660 even our minimum price of producing apples is lower. 0:01:11.990,0:01:16.480 Now, when we have supply curve shifted this way, shifted to the right 0:01:16.480,0:01:18.950 what happens to the equilibrium price? 0:01:18.960,0:01:21.780 Well our old equilibrium price was over here, 0:01:22.300,0:01:25.070 our new equilibrium price..so this is old one 0:01:25.070,0:01:27.100 and this is our new equilibrium price, 0:01:27.320,0:01:30.050 we're assuming that the demand has not changed at all 0:01:30.050,0:01:32.250 so this is our new equilibrium price 0:01:32.450,0:01:38.010 so our new equilibrium price is lower, so the price went down. 0:01:38.230,0:01:42.300 And you don't have to, you could've probably reason through that before taking an e-class 0:01:42.300,0:01:44.520 But this way you have some way to think about it, 0:01:44.520,0:01:46.710 think about how the curves are changing. 0:01:46.890,0:01:48.990 Now let's think about this scenario. 0:01:49.010,0:01:54.240 So this is before, so all of these examples, this is the graph is what happened before. 0:01:54.260,0:01:57.940 the event came out, so this is before 0:01:57.940,0:02:02.370 and the studies release on how apples prevent cancer. So what is that likely to do? 0:02:02.370,0:02:04.320 Well no one want cancer 0:02:04.350,0:02:07.670 and more people would be eager to have apples, 0:02:07.670,0:02:09.280 this will change customer preferences. 0:02:09.280,0:02:13.210 they will prefer apples even more when they're..when they're at the supermarket. 0:02:13.480,0:02:16.790 So this is clearly affecting demand customer preferences 0:02:16.940,0:02:19.790 and at the given price customers will want to get, 0:02:20.120,0:02:23.940 people will demand higher quantity of apples, 0:02:23.940,0:02:27.120 quantity demanded of the apples would go up. 0:02:27.530,0:02:33.810 So the demand curve will shift to the right, or you could say that demand would go up 0:02:34.030,0:02:40.850 so that's the new demand curve, so here the demand goes up, 0:02:40.870,0:02:44.150 and let me write over here in this situation supply went up, 0:02:44.150,0:02:47.390 here demand goes up, and what happens to the price? 0:02:47.680,0:02:50.660 This is our old equilibrium price 0:02:50.680,0:02:53.190 and this is our new equilibrium price 0:02:53.350,0:02:57.660 The price is clearly went up 0:02:57.690,0:03:01.190 Actually over here, let's think about the quantity too in this first situation 0:03:01.220,0:03:05.360 This is our old equilibrium quantity; this is our new equilibrium quantity 0:03:05.400,0:03:09.100 Quantity went up which makes sense 0:03:09.100,0:03:12.420 If you have fewer apples dying, price went down, more people want to buy it 0:03:12.460,0:03:18.810 Here, price went up and what happened to quantity? 0:03:18.840,0:03:23.290 Quantity. This is our old equilibrium quantity; this is our new equilibrium quantity 0:03:23.330,0:03:27.250 Quantity also went up 0:03:27.270,0:03:30.420 More people just want to buy apples; they don't want to get cancer 0:03:30.450,0:03:33.020 Now let's think about these scenarios right over here 0:03:33.050,0:03:37.180 The pear cider industry launches an ad campaign 0:03:37.540,0:03:42.700 For the sake of this, let's assume the same growers who grow apples can also grow pears. 0:03:42.700,0:03:44.340 That makes it interesting 0:03:44.360,0:03:46.740 So you have a couple of interesting things 0:03:46.740,0:03:50.840 By launching this advertising campaign -- we assume it's a good advertising campaign -- 0:03:50.860,0:04:01.060 this will clearly make demand go up for pear cider relative to apple cider 0:04:01.060,0:04:03.690 Most people when they think of cider, they think of apple cider 0:04:03.700,0:04:08.500 Now all of a sudden, pear cider comes out. It'll make demand for apple cider go down 0:04:08.510,0:04:16.540 So this is, apple cider demand will go down 0:04:16.850,0:04:19.590 If the apple cider demand goes down, 0:04:19.590,0:04:22.990 the apple cider producers are going to demand fewer apples 0:04:23.300,0:04:31.140 This means apple demand will go down 0:04:31.140,0:04:34.390 At any given price point, apple demand will go down 0:04:34.400,0:04:38.340 So the apple demand curve will shift to the left 0:04:38.460,0:04:41.940 I should say at any given price point, the quantity demanded will go down 0:04:41.950,0:04:48.010 so the entire curve, the entire relationship will shift to the left 0:04:48.030,0:04:50.730 Now that is not all that might happen 0:04:50.750,0:04:52.940 because if you think about it from the suppliers' point of view 0:04:52.950,0:04:55.450 I don't know if this is really the case, but let's assume 0:04:55.530,0:04:59.220 that the farmers who grow apples can also grow pears 0:04:59.250,0:05:03.350 Well, they might say, well, now that there's more demand for pears 0:05:03.350,0:05:05.600 they're doing this advertising campaign 0:05:05.630,0:05:08.970 and probably the price of pears has gone up 0:05:09.010,0:05:12.580 They might say, well, I'm going to devote more of my land to pears and 0:05:12.580,0:05:14.620 less of my land to apples 0:05:14.640,0:05:24.990 And so the apple supply might go down 0:05:25.460,0:05:31.950 It also shift to the left. So they're both shifting to the left 0:05:32.360,0:05:34.640 Now what is likely to happen here? 0:05:34.640,0:05:38.340 The demand went down and the supply went down; they both shifted to the left 0:05:38.720,0:05:41.490 Well, here the way I drew it. 0:05:41.490,0:05:45.240 This was our old equilibrium price; this is our new equilibrium price 0:05:45.450,0:05:49.240 It actually looks the way that I drew it right over here that it did not change 0:05:49.290,0:05:52.340 The equilibrium quantity definitely 0:05:52.340,0:05:55.850 This was our old equilibrium quantity; this is our new equilibrium quantity 0:05:55.880,0:06:00.000 Clearly the quantity went down. It was a bad day for apples 0:06:00.000,0:06:02.980 but the price didn't change because at least in the example 0:06:02.980,0:06:06.700 we assume that the farmers also produced fewer apples 0:06:06.720,0:06:12.410 It turns out that I can have drawn it in multiple ways. Let me draw it in different ways here 0:06:12.460,0:06:14.680 So the quantity definitely-- 0:06:14.710,0:06:18.040 So let's think about other scenarios. Let me draw it slightly different 0:06:18.040,0:06:21.810 Let's say that the supply goes down even more dramatically 0:06:21.810,0:06:24.740 Let's say that the supply shifts all the way 0:06:24.740,0:06:28.260 the supply shifts really far back. Now what happens? 0:06:29.060,0:06:31.680 Well now our equilibrium price 0:06:31.680,0:06:38.850 because the reduction in supply was more extreme than the reduction in the demand 0:06:39.160,0:06:43.040 Now -- and it really depends on how the curve shapes and all that 0:06:43.040,0:06:46.400 The main thing is to reason through so as to see what the actually results are 0:06:46.400,0:06:50.290 but in this situation, all of a sudden, the price went up, 0:06:50.290,0:06:53.120 but the quantity definitely still went down 0:06:53.120,0:06:55.700 So in this case, the one thing that you're always going to be sure 0:06:55.700,0:06:59.570 is that the quantity went down but the price went up because this effect 0:06:59.610,0:07:05.690 The supply went down much more than the demand did. So the price went up 0:07:06.030,0:07:10.130 Now I could have done another scenario where maybe 0:07:10.320,0:07:13.380 the supply barely barged or maybe the demand went down dramatically 0:07:13.380,0:07:15.890 Let me draw it where the supply barely barges 0:07:15.900,0:07:20.020 So maybe the supply, it only gets shifted a little bit to the left 0:07:20.030,0:07:22.610 So maybe the supply curve looks like this 0:07:22.630,0:07:25.380 Now all of a sudden, quantity definitely goes down 0:07:25.380,0:07:29.330 So in all of the scenarios, the quantity will go down 0:07:29.410,0:07:32.290 But I've just done 3 scenarios where the price could be neutral, 0:07:32.290,0:07:35.810 the price could go up or the price could go down. So you actually don't know 0:07:36.070,0:07:38.730 what is going to happen to price based on this 0:07:38.740,0:07:42.960 You'd actually have to look at the actual curve and see what the new equilibrium prices are 0:07:43.670,0:07:49.590 Now let's look at this. The apple pickers unionize and demand wage increases 0:07:49.610,0:07:52.300 So this is an issue for the suppliers 0:07:52.490,0:07:56.480 So all of a sudden, one of their inputs, one of the costs of production 0:07:56.480,0:07:58.970 which is labor has gone up 0:07:58.990,0:08:01.350 So the cost of production has gone up 0:08:01.350,0:08:04.020 Now at a given price point, they're less profitable 0:08:04.050,0:08:06.610 less willing to produce apples 0:08:06.630,0:08:09.780 So at a given price point--so we're talking about the suppliers 0:08:10.020,0:08:15.840 at a given price point they will supply a lower quantity 0:08:15.840,0:08:21.350 So this is going to lower supply 0:08:21.380,0:08:26.520 When you lower supply, what's going to happen? 0:08:26.520,0:08:32.000 Well your equilibrium quantity, this was our old one, this is our new one 0:08:32.050,0:08:36.430 equilibrium quantity definitely goes down 0:08:36.450,0:08:39.670 And what happened to the price, assuming nothing changes to the demand? 0:08:39.700,0:08:45.310 So this was our old equilibrium price; this is our new equilibrium price; it went up 0:08:45.590,0:08:49.030 Quantity went down and price went up 0:08:49.050,0:08:55.430 I encourage you to--I should've told you at the beginning to try these for yourself 0:08:55.450,0:08:58.130 but I encourage you to try these out with different situations 0:08:58.130,0:08:59.840 Think of situations yourself 0:08:59.850,0:09:03.280 and even think about different markets other than the apple market