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