What I want to do in this video is how supply and / or demand might change
based on changes on some factors of the market
and then think about what that might do to the equilibrium price and equilibrium quantity.
So let's say at some period, this is what the supply curve looks like,
and this is what the demand looks like
and then all of a sudden this thing happens.
A new disease resistant apple is invented what's likely to happen for the next period?
Well a new disease resistant apple being invented,
this is something that clearly impacts the growers and clearly impacts the suppliers.
All of a sudden you'll have fewer apples vulnerable to disease
and so they will be able to produce more apples,
so at any given price point this will shift the quantity of apples supplied up,
or you could say that entire supply curve is shifted to the right or supply goes up,
and obviously, if now we have disease resistant apples
even our minimum price of producing apples is lower.
Now, when we have supply curve shifted this way, shifted to the right
what happens to the equilibrium price?
Well our old equilibrium price was over here,
our new equilibrium price..so this is old one
and this is our new equilibrium price,
we're assuming that the demand has not changed at all
so this is our new equilibrium price
so our new equilibrium price is lower, so the price went down.
And you don't have to, you could've probably reason through that before taking an e-class
But this way you have some way to think about it,
think about how the curves are changing.
Now let's think about this scenario.
So this is before, so all of these examples, this is the graph is what happened before.
the event came out, so this is before
and the studies release on how apples prevent cancer. So what is that likely to do?
Well no one want cancer
and more people would be eager to have apples,
this will change customer preferences.
they will prefer apples even more when they're..when they're at the supermarket.
So this is clearly affecting demand customer preferences
and at the given price customers will want to get,
people will demand higher quantity of apples,
quantity demanded of the apples would go up.
So the demand curve will shift to the right, or you could say that demand would go up
so that's the new demand curve, so here the demand goes up,
and let me write over here in this situation supply went up,
here demand goes up, and what happens to the price?
This is our old equilibrium price
and this is our new equilibrium price
The price is clearly went up
Actually over here, let's think about the quantity too in this first situation
This is our old equilibrium quantity; this is our new equilibrium quantity
Quantity went up which makes sense
If you have fewer apples dying, price went down, more people want to buy it
Here, price went up and what happened to quantity?
Quantity. This is our old equilibrium quantity; this is our new equilibrium quantity
Quantity also went up
More people just want to buy apples; they don't want to get cancer
Now let's think about these scenarios right over here
The pear cider industry launches an ad campaign
For the sake of this, let's assume the same growers who grow apples can also grow pears.
That makes it interesting
So you have a couple of interesting things
By launching this advertising campaign -- we assume it's a good advertising campaign --
this will clearly make demand go up for pear cider relative to apple cider
Most people when they think of cider, they think of apple cider
Now all of a sudden, pear cider comes out. It'll make demand for apple cider go down
So this is, apple cider demand will go down
If the apple cider demand goes down,
the apple cider producers are going to demand fewer apples
This means apple demand will go down
At any given price point, apple demand will go down
So the apple demand curve will shift to the left
I should say at any given price point, the quantity demanded will go down
so the entire curve, the entire relationship will shift to the left
Now that is not all that might happen
because if you think about it from the suppliers' point of view
I don't know if this is really the case, but let's assume
that the farmers who grow apples can also grow pears
Well, they might say, well, now that there's more demand for pears
they're doing this advertising campaign
and probably the price of pears has gone up
They might say, well, I'm going to devote more of my land to pears and
less of my land to apples
And so the apple supply might go down
It also shift to the left. So they're both shifting to the left
Now what is likely to happen here?
The demand went down and the supply went down; they both shifted to the left
Well, here the way I drew it.
This was our old equilibrium price; this is our new equilibrium price
It actually looks the way that I drew it right over here that it did not change
The equilibrium quantity definitely
This was our old equilibrium quantity; this is our new equilibrium quantity
Clearly the quantity went down. It was a bad day for apples
but the price didn't change because at least in the example
we assume that the farmers also produced fewer apples
It turns out that I can have drawn it in multiple ways. Let me draw it in different ways here
So the quantity definitely--
So let's think about other scenarios. Let me draw it slightly different
Let's say that the supply goes down even more dramatically
Let's say that the supply shifts all the way
the supply shifts really far back. Now what happens?
Well now our equilibrium price
because the reduction in supply was more extreme than the reduction in the demand
Now -- and it really depends on how the curve shapes and all that
The main thing is to reason through so as to see what the actually results are
but in this situation, all of a sudden, the price went up,
but the quantity definitely still went down
So in this case, the one thing that you're always going to be sure
is that the quantity went down but the price went up because this effect
The supply went down much more than the demand did. So the price went up
Now I could have done another scenario where maybe
the supply barely barged or maybe the demand went down dramatically
Let me draw it where the supply barely barges
So maybe the supply, it only gets shifted a little bit to the left
So maybe the supply curve looks like this
Now all of a sudden, quantity definitely goes down
So in all of the scenarios, the quantity will go down
But I've just done 3 scenarios where the price could be neutral,
the price could go up or the price could go down. So you actually don't know
what is going to happen to price based on this
You'd actually have to look at the actual curve and see what the new equilibrium prices are
Now let's look at this. The apple pickers unionize and demand wage increases
So this is an issue for the suppliers
So all of a sudden, one of their inputs, one of the costs of production
which is labor has gone up
So the cost of production has gone up
Now at a given price point, they're less profitable
less willing to produce apples
So at a given price point--so we're talking about the suppliers
at a given price point they will supply a lower quantity
So this is going to lower supply
When you lower supply, what's going to happen?
Well your equilibrium quantity, this was our old one, this is our new one
equilibrium quantity definitely goes down
And what happened to the price, assuming nothing changes to the demand?
So this was our old equilibrium price; this is our new equilibrium price; it went up
Quantity went down and price went up
I encourage you to--I should've told you at the beginning to try these for yourself
but I encourage you to try these out with different situations
Think of situations yourself
and even think about different markets other than the apple market