1 00:00:00,590 --> 00:00:05,550 What I want to do in this video is how supply and / or demand might change 2 00:00:05,650 --> 00:00:08,590 based on changes on some factors of the market 3 00:00:08,700 --> 00:00:14,580 and then think about what that might do to the equilibrium price and equilibrium quantity. 4 00:00:14,900 --> 00:00:19,210 So let's say at some period, this is what the supply curve looks like, 5 00:00:19,210 --> 00:00:21,320 and this is what the demand looks like 6 00:00:21,400 --> 00:00:23,310 and then all of a sudden this thing happens. 7 00:00:23,330 --> 00:00:28,910 A new disease resistant apple is invented what's likely to happen for the next period? 8 00:00:29,360 --> 00:00:32,280 Well a new disease resistant apple being invented, 9 00:00:32,330 --> 00:00:36,630 this is something that clearly impacts the growers and clearly impacts the suppliers. 10 00:00:36,630 --> 00:00:40,520 All of a sudden you'll have fewer apples vulnerable to disease 11 00:00:40,520 --> 00:00:42,910 and so they will be able to produce more apples, 12 00:00:42,910 --> 00:00:55,930 so at any given price point this will shift the quantity of apples supplied up, 13 00:00:55,930 --> 00:01:05,590 or you could say that entire supply curve is shifted to the right or supply goes up, 14 00:01:05,610 --> 00:01:08,220 and obviously, if now we have disease resistant apples 15 00:01:08,220 --> 00:01:11,660 even our minimum price of producing apples is lower. 16 00:01:11,990 --> 00:01:16,480 Now, when we have supply curve shifted this way, shifted to the right 17 00:01:16,480 --> 00:01:18,950 what happens to the equilibrium price? 18 00:01:18,960 --> 00:01:21,780 Well our old equilibrium price was over here, 19 00:01:22,300 --> 00:01:25,070 our new equilibrium price..so this is old one 20 00:01:25,070 --> 00:01:27,100 and this is our new equilibrium price, 21 00:01:27,320 --> 00:01:30,050 we're assuming that the demand has not changed at all 22 00:01:30,050 --> 00:01:32,250 so this is our new equilibrium price 23 00:01:32,450 --> 00:01:38,010 so our new equilibrium price is lower, so the price went down. 24 00:01:38,230 --> 00:01:42,300 And you don't have to, you could've probably reason through that before taking an e-class 25 00:01:42,300 --> 00:01:44,520 But this way you have some way to think about it, 26 00:01:44,520 --> 00:01:46,710 think about how the curves are changing. 27 00:01:46,890 --> 00:01:48,990 Now let's think about this scenario. 28 00:01:49,010 --> 00:01:54,240 So this is before, so all of these examples, this is the graph is what happened before. 29 00:01:54,260 --> 00:01:57,940 the event came out, so this is before 30 00:01:57,940 --> 00:02:02,370 and the studies release on how apples prevent cancer. So what is that likely to do? 31 00:02:02,370 --> 00:02:04,320 Well no one want cancer 32 00:02:04,350 --> 00:02:07,670 and more people would be eager to have apples, 33 00:02:07,670 --> 00:02:09,280 this will change customer preferences. 34 00:02:09,280 --> 00:02:13,210 they will prefer apples even more when they're..when they're at the supermarket. 35 00:02:13,480 --> 00:02:16,790 So this is clearly affecting demand customer preferences 36 00:02:16,940 --> 00:02:19,790 and at the given price customers will want to get, 37 00:02:20,120 --> 00:02:23,940 people will demand higher quantity of apples, 38 00:02:23,940 --> 00:02:27,120 quantity demanded of the apples would go up. 39 00:02:27,530 --> 00:02:33,810 So the demand curve will shift to the right, or you could say that demand would go up 40 00:02:34,030 --> 00:02:40,850 so that's the new demand curve, so here the demand goes up, 41 00:02:40,870 --> 00:02:44,150 and let me write over here in this situation supply went up, 42 00:02:44,150 --> 00:02:47,390 here demand goes up, and what happens to the price? 43 00:02:47,680 --> 00:02:50,660 This is our old equilibrium price 44 00:02:50,680 --> 00:02:53,190 and this is our new equilibrium price 45 00:02:53,350 --> 00:02:57,660 The price is clearly went up 46 00:02:57,690 --> 00:03:01,190 Actually over here, let's think about the quantity too in this first situation 47 00:03:01,220 --> 00:03:05,360 This is our old equilibrium quantity; this is our new equilibrium quantity 48 00:03:05,400 --> 00:03:09,100 Quantity went up which makes sense 49 00:03:09,100 --> 00:03:12,420 If you have fewer apples dying, price went down, more people want to buy it 50 00:03:12,460 --> 00:03:18,810 Here, price went up and what happened to quantity? 51 00:03:18,840 --> 00:03:23,290 Quantity. This is our old equilibrium quantity; this is our new equilibrium quantity 52 00:03:23,330 --> 00:03:27,250 Quantity also went up 53 00:03:27,270 --> 00:03:30,420 More people just want to buy apples; they don't want to get cancer 54 00:03:30,450 --> 00:03:33,020 Now let's think about these scenarios right over here 55 00:03:33,050 --> 00:03:37,180 The pear cider industry launches an ad campaign 56 00:03:37,540 --> 00:03:42,700 For the sake of this, let's assume the same growers who grow apples can also grow pears. 57 00:03:42,700 --> 00:03:44,340 That makes it interesting 58 00:03:44,360 --> 00:03:46,740 So you have a couple of interesting things 59 00:03:46,740 --> 00:03:50,840 By launching this advertising campaign -- we assume it's a good advertising campaign -- 60 00:03:50,860 --> 00:04:01,060 this will clearly make demand go up for pear cider relative to apple cider 61 00:04:01,060 --> 00:04:03,690 Most people when they think of cider, they think of apple cider 62 00:04:03,700 --> 00:04:08,500 Now all of a sudden, pear cider comes out. It'll make demand for apple cider go down 63 00:04:08,510 --> 00:04:16,540 So this is, apple cider demand will go down 64 00:04:16,850 --> 00:04:19,590 If the apple cider demand goes down, 65 00:04:19,590 --> 00:04:22,990 the apple cider producers are going to demand fewer apples 66 00:04:23,300 --> 00:04:31,140 This means apple demand will go down 67 00:04:31,140 --> 00:04:34,390 At any given price point, apple demand will go down 68 00:04:34,400 --> 00:04:38,340 So the apple demand curve will shift to the left 69 00:04:38,460 --> 00:04:41,940 I should say at any given price point, the quantity demanded will go down 70 00:04:41,950 --> 00:04:48,010 so the entire curve, the entire relationship will shift to the left 71 00:04:48,030 --> 00:04:50,730 Now that is not all that might happen 72 00:04:50,750 --> 00:04:52,940 because if you think about it from the suppliers' point of view 73 00:04:52,950 --> 00:04:55,450 I don't know if this is really the case, but let's assume 74 00:04:55,530 --> 00:04:59,220 that the farmers who grow apples can also grow pears 75 00:04:59,250 --> 00:05:03,350 Well, they might say, well, now that there's more demand for pears 76 00:05:03,350 --> 00:05:05,600 they're doing this advertising campaign 77 00:05:05,630 --> 00:05:08,970 and probably the price of pears has gone up 78 00:05:09,010 --> 00:05:12,580 They might say, well, I'm going to devote more of my land to pears and 79 00:05:12,580 --> 00:05:14,620 less of my land to apples 80 00:05:14,640 --> 00:05:24,990 And so the apple supply might go down 81 00:05:25,460 --> 00:05:31,950 It also shift to the left. So they're both shifting to the left 82 00:05:32,360 --> 00:05:34,640 Now what is likely to happen here? 83 00:05:34,640 --> 00:05:38,340 The demand went down and the supply went down; they both shifted to the left 84 00:05:38,720 --> 00:05:41,490 Well, here the way I drew it. 85 00:05:41,490 --> 00:05:45,240 This was our old equilibrium price; this is our new equilibrium price 86 00:05:45,450 --> 00:05:49,240 It actually looks the way that I drew it right over here that it did not change 87 00:05:49,290 --> 00:05:52,340 The equilibrium quantity definitely 88 00:05:52,340 --> 00:05:55,850 This was our old equilibrium quantity; this is our new equilibrium quantity 89 00:05:55,880 --> 00:06:00,000 Clearly the quantity went down. It was a bad day for apples 90 00:06:00,000 --> 00:06:02,980 but the price didn't change because at least in the example 91 00:06:02,980 --> 00:06:06,700 we assume that the farmers also produced fewer apples 92 00:06:06,720 --> 00:06:12,410 It turns out that I can have drawn it in multiple ways. Let me draw it in different ways here 93 00:06:12,460 --> 00:06:14,680 So the quantity definitely-- 94 00:06:14,710 --> 00:06:18,040 So let's think about other scenarios. Let me draw it slightly different 95 00:06:18,040 --> 00:06:21,810 Let's say that the supply goes down even more dramatically 96 00:06:21,810 --> 00:06:24,740 Let's say that the supply shifts all the way 97 00:06:24,740 --> 00:06:28,260 the supply shifts really far back. Now what happens? 98 00:06:29,060 --> 00:06:31,680 Well now our equilibrium price 99 00:06:31,680 --> 00:06:38,850 because the reduction in supply was more extreme than the reduction in the demand 100 00:06:39,160 --> 00:06:43,040 Now -- and it really depends on how the curve shapes and all that 101 00:06:43,040 --> 00:06:46,400 The main thing is to reason through so as to see what the actually results are 102 00:06:46,400 --> 00:06:50,290 but in this situation, all of a sudden, the price went up, 103 00:06:50,290 --> 00:06:53,120 but the quantity definitely still went down 104 00:06:53,120 --> 00:06:55,700 So in this case, the one thing that you're always going to be sure 105 00:06:55,700 --> 00:06:59,570 is that the quantity went down but the price went up because this effect 106 00:06:59,610 --> 00:07:05,690 The supply went down much more than the demand did. So the price went up 107 00:07:06,030 --> 00:07:10,130 Now I could have done another scenario where maybe 108 00:07:10,320 --> 00:07:13,380 the supply barely barged or maybe the demand went down dramatically 109 00:07:13,380 --> 00:07:15,890 Let me draw it where the supply barely barges 110 00:07:15,900 --> 00:07:20,020 So maybe the supply, it only gets shifted a little bit to the left 111 00:07:20,030 --> 00:07:22,610 So maybe the supply curve looks like this 112 00:07:22,630 --> 00:07:25,380 Now all of a sudden, quantity definitely goes down 113 00:07:25,380 --> 00:07:29,330 So in all of the scenarios, the quantity will go down 114 00:07:29,410 --> 00:07:32,290 But I've just done 3 scenarios where the price could be neutral, 115 00:07:32,290 --> 00:07:35,810 the price could go up or the price could go down. So you actually don't know 116 00:07:36,070 --> 00:07:38,730 what is going to happen to price based on this 117 00:07:38,740 --> 00:07:42,960 You'd actually have to look at the actual curve and see what the new equilibrium prices are 118 00:07:43,670 --> 00:07:49,590 Now let's look at this. The apple pickers unionize and demand wage increases 119 00:07:49,610 --> 00:07:52,300 So this is an issue for the suppliers 120 00:07:52,490 --> 00:07:56,480 So all of a sudden, one of their inputs, one of the costs of production 121 00:07:56,480 --> 00:07:58,970 which is labor has gone up 122 00:07:58,990 --> 00:08:01,350 So the cost of production has gone up 123 00:08:01,350 --> 00:08:04,020 Now at a given price point, they're less profitable 124 00:08:04,050 --> 00:08:06,610 less willing to produce apples 125 00:08:06,630 --> 00:08:09,780 So at a given price point--so we're talking about the suppliers 126 00:08:10,020 --> 00:08:15,840 at a given price point they will supply a lower quantity 127 00:08:15,840 --> 00:08:21,350 So this is going to lower supply 128 00:08:21,380 --> 00:08:26,520 When you lower supply, what's going to happen? 129 00:08:26,520 --> 00:08:32,000 Well your equilibrium quantity, this was our old one, this is our new one 130 00:08:32,050 --> 00:08:36,430 equilibrium quantity definitely goes down 131 00:08:36,450 --> 00:08:39,670 And what happened to the price, assuming nothing changes to the demand? 132 00:08:39,700 --> 00:08:45,310 So this was our old equilibrium price; this is our new equilibrium price; it went up 133 00:08:45,590 --> 00:08:49,030 Quantity went down and price went up 134 00:08:49,050 --> 00:08:55,430 I encourage you to--I should've told you at the beginning to try these for yourself 135 00:08:55,450 --> 00:08:58,130 but I encourage you to try these out with different situations 136 00:08:58,130 --> 00:08:59,840 Think of situations yourself 137 00:08:59,850 --> 00:09:03,280 and even think about different markets other than the apple market