0:00:00.030,0:00:02.750
so let's say we are in the Apple market

0:00:02.750,0:00:05.160
what I want to do in this video is think

0:00:05.160,0:00:07.980
about both demand and supply for the

0:00:07.980,0:00:10.650
apples at different prices so let's draw

0:00:10.650,0:00:13.799
ourselves a little graph here and we

0:00:13.799,0:00:15.299
already know this right over here the

0:00:15.299,0:00:17.369
vertical axis is the price axis and this

0:00:17.369,0:00:19.619
is we're going to say it's price per

0:00:19.619,0:00:22.170
pound and the horizontal axis this is

0:00:22.170,0:00:26.070
the quantity the quantity of apples and

0:00:26.070,0:00:27.869
let's put some tick marks here let's say

0:00:27.869,0:00:29.250
that's one dollar a pound

0:00:29.250,0:00:31.380
two dollars a pound three dollars a

0:00:31.380,0:00:33.570
pound four dollars a pound and five

0:00:33.570,0:00:35.940
dollars and let's say this is thousands

0:00:35.940,0:00:39.030
thousands of pounds produce and we have

0:00:39.030,0:00:40.350
to set a period so let's say this is all

0:00:40.350,0:00:44.040
for the next week and so this is 1000

0:00:44.040,0:00:49.260
pounds 2,000 3,000 4,000 and 5,000 now

0:00:49.260,0:00:50.879
let's think about both the supply and

0:00:50.879,0:00:54.090
the demand curves for this market or

0:00:54.090,0:00:56.640
potential supply and demand curves so

0:00:56.640,0:00:59.070
first I will do first I will do the

0:00:59.070,0:01:03.090
demand so if we if the price of Apple's

0:01:03.090,0:01:04.830
were really high and I encourage you to

0:01:04.830,0:01:06.090
always think about this when you're

0:01:06.090,0:01:07.470
about to draw your demand and supply

0:01:07.470,0:01:10.290
curves if the price of Apple's were

0:01:10.290,0:01:12.479
really high what would happen to

0:01:12.479,0:01:13.950
consumers well they say they wouldn't

0:01:13.950,0:01:16.110
demand much so the quantity demanded

0:01:16.110,0:01:19.470
would be low so if the price were high

0:01:19.470,0:01:21.840
maybe the quantity demanded is like 500

0:01:21.840,0:01:25.530
apples 500 apples and and once again I'm

0:01:25.530,0:01:27.180
being very careful to say the quantity

0:01:27.180,0:01:28.950
demanded is 500 apples I'm not saying

0:01:28.950,0:01:31.500
the demand is 500 apples the demand is

0:01:31.500,0:01:33.900
the entire relationship the actual

0:01:33.900,0:01:35.700
specific quantity we call that the

0:01:35.700,0:01:39.000
quantity demanded so at a price of $5

0:01:39.000,0:01:40.740
the quantity demanded would be about 500

0:01:40.740,0:01:43.259
maybe at a price of $1 the quantity

0:01:43.259,0:01:46.560
demanded would be maybe 4,000 pounds and

0:01:46.560,0:01:49.140
so our demand curve might look something

0:01:49.140,0:01:50.159
like this

0:01:50.159,0:01:52.049
might look something like that let me

0:01:52.049,0:01:55.649
draw it a little bit less bumpy so our

0:01:55.649,0:01:57.360
demand curve might look something like

0:01:57.360,0:01:57.810
that

0:01:57.810,0:02:00.930
I can label it that is our demand curve

0:02:00.930,0:02:02.990
and I'll think about our supply curve

0:02:02.990,0:02:05.969
well there's some price below which we

0:02:05.969,0:02:08.429
aren't even willing to produce apples so

0:02:08.429,0:02:10.830
let's say that's like 50 cents so at 50

0:02:10.830,0:02:12.360
cents that's where we're even just

0:02:12.360,0:02:13.680
willing to start producing

0:02:13.680,0:02:16.049
apples let's say if Apple if the price

0:02:16.049,0:02:19.109
of Apple's got to $1 we the quantity

0:02:19.109,0:02:21.569
we'd be willing to supply is about a

0:02:21.569,0:02:23.549
thousand pounds and it just keeps

0:02:23.549,0:02:26.760
increasing as the price increases so

0:02:26.760,0:02:28.859
this is the supply curve when I talk

0:02:28.859,0:02:30.540
about we I'm talking about all of the

0:02:30.540,0:02:32.219
suppliers in this market we could be

0:02:32.219,0:02:33.840
doing this for a specific supplier we

0:02:33.840,0:02:34.650
could be doing this for a specific

0:02:34.650,0:02:36.209
market we could be doing this for the

0:02:36.209,0:02:38.670
global Apple market however you want to

0:02:38.670,0:02:40.439
view it but for the sake of this video

0:02:40.439,0:02:41.969
let's assume it's like our little town

0:02:41.969,0:02:44.269
that is fairly isolated and all of that

0:02:44.269,0:02:47.040
now let's think about what happens in

0:02:47.040,0:02:50.430
different scenarios what happens if the

0:02:50.430,0:02:54.180
the the suppliers of the apples going

0:02:54.180,0:02:55.919
into that week for their own planning

0:02:55.919,0:02:58.530
purposes they just think for whatever

0:02:58.530,0:03:00.209
reason that they're only going to be

0:03:00.209,0:03:02.250
able to sell the apples at $1 per pound

0:03:02.250,0:03:05.400
and so given that given their given the

0:03:05.400,0:03:07.349
supply curve they only they're only they

0:03:07.349,0:03:08.900
only are able to supply only supply

0:03:08.900,0:03:11.700
1,000 pounds so this is what the

0:03:11.700,0:03:13.500
supplier is planned for and this is

0:03:13.500,0:03:15.359
where they set the price point at one

0:03:15.359,0:03:18.299
dollar at one dollar per pound now

0:03:18.299,0:03:20.150
what's going to happen in that scenario

0:03:20.150,0:03:22.699
well in that scenario they supplied

0:03:22.699,0:03:26.220
1,000 the quantity supplied is 1,000

0:03:26.220,0:03:28.650
pounds so let me write this down so I'll

0:03:28.650,0:03:30.959
do it in pink for this scenario so in

0:03:30.959,0:03:35.449
this area the quantity quantity supplied

0:03:35.449,0:03:39.269
quantity supplied is 1,000 pounds and

0:03:39.269,0:03:42.989
what is the quantity demanded quantity

0:03:42.989,0:03:48.299
demanded demanded demanded and this is

0:03:48.299,0:03:51.329
all a scenario where the price the price

0:03:51.329,0:03:53.370
or the initial price that the growers or

0:03:53.370,0:03:55.799
the producer set was one dollar per

0:03:55.799,0:03:58.259
pound one dollar per pound

0:03:58.259,0:04:00.000
well the quantity demanded one dollar

0:04:00.000,0:04:02.970
per pound is four thousand four thousand

0:04:02.970,0:04:05.639
pounds of apples four thousand pounds of

0:04:05.639,0:04:08.220
apples so what do we have here well here

0:04:08.220,0:04:11.389
we have a shortage we have a shortage of

0:04:11.389,0:04:17.220
we have a shortage a shortage of 3,000

0:04:17.220,0:04:19.649
apples at that price point at a dollar a

0:04:19.649,0:04:21.779
lot more people are going to want to buy

0:04:21.779,0:04:24.180
apples and these the producers just

0:04:24.180,0:04:26.250
didn't I guess did they didn't they

0:04:26.250,0:04:26.570
didn't

0:04:26.570,0:04:27.890
figure that out right and they didn't

0:04:27.890,0:04:30.080
produce enough apples now what will

0:04:30.080,0:04:32.450
naturally start happening if you have

0:04:32.450,0:04:34.100
the short you have all these people who

0:04:34.100,0:04:35.840
want to buy apples and you only have so

0:04:35.840,0:04:38.090
many apples there well what might happen

0:04:38.090,0:04:40.580
in the next period in the next week well

0:04:40.580,0:04:42.380
first of all those apples that are out

0:04:42.380,0:04:44.300
there they might get bid up so the

0:04:44.300,0:04:46.670
prices start going to start going up the

0:04:46.670,0:04:48.440
price is going to start going up people

0:04:48.440,0:04:49.940
are going to start bidding up the apples

0:04:49.940,0:04:51.410
they want them so badly they're going to

0:04:51.410,0:04:53.270
start bidding them up and as they start

0:04:53.270,0:04:55.190
getting bit up the producers are going

0:04:55.190,0:04:56.840
to say wow there's so many people we're

0:04:56.840,0:04:58.850
running out of apples we also need to

0:04:58.850,0:05:02.120
increase the quantity produced and so

0:05:02.120,0:05:05.690
the quantity the quantity will also go

0:05:05.690,0:05:07.910
up so the price will go up if you look

0:05:07.910,0:05:09.740
at from the from the suppliers point of

0:05:09.740,0:05:11.600
view the price will go up and the

0:05:11.600,0:05:14.030
quantity will go up they will move they

0:05:14.030,0:05:16.490
will move along this line there so maybe

0:05:16.490,0:05:17.870
in the next period there's less of a

0:05:17.870,0:05:20.210
shortage or they get slowed they move

0:05:20.210,0:05:22.130
they move away from that shortage

0:05:22.130,0:05:23.900
situation if the quantity if the price

0:05:23.900,0:05:25.640
and quantity increase a little bit so

0:05:25.640,0:05:28.310
maybe the price goes to $2 now and the

0:05:28.310,0:05:29.690
quantity goes to I don't know this looks

0:05:29.690,0:05:32.990
like about 1,900 1,900 pounds now of a

0:05:32.990,0:05:36.170
sudden you have less of a shortage and I

0:05:36.170,0:05:37.580
think you see that I'm getting to an

0:05:37.580,0:05:39.020
interesting point over here but I won't

0:05:39.020,0:05:41.180
go there just yet I won't go there just

0:05:41.180,0:05:42.530
yet now let's think about another

0:05:42.530,0:05:44.660
situation let's think about after this

0:05:44.660,0:05:46.940
happens price and quantity increases so

0:05:46.940,0:05:49.040
much that essentially overshoots this

0:05:49.040,0:05:51.440
interesting point right over here so in

0:05:51.440,0:05:53.570
the next week the suppliers all say wow

0:05:53.570,0:05:56.930
people want our apples so badly let's

0:05:56.930,0:05:59.870
just the price really high $3 and $3

0:05:59.870,0:06:01.550
we're really excited about producing

0:06:01.550,0:06:04.490
apples so we the suppliers we the

0:06:04.490,0:06:06.470
suppliers are going to produce let me do

0:06:06.470,0:06:08.600
this in a color I haven't used yet we

0:06:08.600,0:06:12.110
the suppliers are going to produce at $3

0:06:12.110,0:06:14.870
a pound we're hoping to sell 3,000

0:06:14.870,0:06:17.300
pounds of apples so this is where maybe

0:06:17.300,0:06:19.250
were they adjust to the next week but

0:06:19.250,0:06:20.630
what's going to happen there at a price

0:06:20.630,0:06:23.030
of $3 so that's this scenario right over

0:06:23.030,0:06:27.790
here the price of $3 so the price is now

0:06:27.790,0:06:31.310
the price is now $3 per pound

0:06:31.310,0:06:36.430
well now the quantity quantity supplied

0:06:36.430,0:06:40.610
the quantity supplied is going to be 3

0:06:40.610,0:06:44.270
thousand pounds three thousand three

0:06:44.270,0:06:46.159
thousand pounds I could write three

0:06:46.159,0:06:48.379
thousand pounds and what is the quantity

0:06:48.379,0:06:53.199
demanded the quantity demanded quantity

0:06:53.199,0:06:56.750
demanded is now much lower the price is

0:06:56.750,0:06:58.759
high now because consumers might want to

0:06:58.759,0:07:00.259
go buy other things or they too can't

0:07:00.259,0:07:01.610
afford an Apple or whatever it might be

0:07:01.610,0:07:04.460
and so now the quantity demanded that

0:07:04.460,0:07:07.490
looks like about not know 1300 1300

0:07:07.490,0:07:10.879
pounds 1300 pounds so what situation do

0:07:10.879,0:07:13.460
we have now well now we have a much

0:07:13.460,0:07:16.699
bigger supply or the quantity supplied

0:07:16.699,0:07:18.080
is much bigger than the quantity

0:07:18.080,0:07:22.129
demanded so now we face we face a

0:07:22.129,0:07:26.180
surplus so now we have a surplus

0:07:26.180,0:07:27.469
let me not draw that line there I want

0:07:27.469,0:07:28.610
to make it clear this is all the same

0:07:28.610,0:07:32.810
scenario we now have a surplus of what

0:07:32.810,0:07:34.729
is this seven hundred will get us to two

0:07:34.729,0:07:37.159
thousand we have a surplus of 1700

0:07:37.159,0:07:40.370
pounds of apples and now what happens in

0:07:40.370,0:07:42.919
a surplus situation well apples won't

0:07:42.919,0:07:46.099
stay good forever so maybe the producers

0:07:46.099,0:07:47.960
get a little desperate so you start they

0:07:47.960,0:07:50.449
start selling they start reducing the

0:07:50.449,0:07:52.699
price maybe to start attracting some

0:07:52.699,0:07:54.650
consumers so they start reducing the

0:07:54.650,0:07:57.020
price and also when they when they start

0:07:57.020,0:07:58.370
seeing that the price is going down and

0:07:58.370,0:07:59.930
you have this glut of apples and that

0:07:59.930,0:08:01.250
they're all going bad and they're not

0:08:01.250,0:08:04.039
getting sold the quantity the quantity

0:08:04.039,0:08:06.409
is also going to start going down

0:08:06.409,0:08:07.940
they'll produce fewer and fewer apples

0:08:07.940,0:08:11.180
and so we'll move here we'll move here

0:08:11.180,0:08:13.819
along the supply curve and as you

0:08:13.819,0:08:17.060
decrease as you decrease the price as

0:08:17.060,0:08:18.740
you decrease the price what's going to

0:08:18.740,0:08:20.180
happen to the demand curve well the

0:08:20.180,0:08:23.089
demand is going to go up so over here

0:08:23.089,0:08:25.639
the price was too high so there's it's

0:08:25.639,0:08:27.620
natural for the sellers to lower the

0:08:27.620,0:08:29.930
price and so when you lower the price it

0:08:29.930,0:08:31.460
also reduces the quantity we go this way

0:08:31.460,0:08:32.958
and when you lower the price it

0:08:32.958,0:08:35.299
increases demand you go that way if the

0:08:35.299,0:08:37.279
price to get from the get-go were too

0:08:37.279,0:08:39.440
low then you have this huge shortage

0:08:39.440,0:08:41.929
things get bit up the prices go up as

0:08:41.929,0:08:44.360
the price goes up the suppliers want to

0:08:44.360,0:08:46.190
produce more they move up the curve and

0:08:46.190,0:08:48.829
as the price boot goes up then the

0:08:48.829,0:08:51.319
people will demand less and you see that

0:08:51.319,0:08:53.449
it's all converging on a point right

0:08:53.449,0:08:54.170
over here

0:08:54.170,0:08:56.089
the two lines intersect and let me do

0:08:56.089,0:08:59.450
that in a it's all converging right over

0:08:59.450,0:09:02.240
there and that's the point at which

0:09:02.240,0:09:05.779
supply that's the price at which this is

0:09:05.779,0:09:07.940
the price at which the quantity supplied

0:09:07.940,0:09:11.149
will equal the quantity demanded and we

0:09:11.149,0:09:13.550
call this price we call this which looks

0:09:13.550,0:09:16.310
like for this scenario maybe about two

0:09:16.310,0:09:18.860
dollars and fifteen cents so let me just

0:09:18.860,0:09:20.329
write it there so two dollars and

0:09:20.329,0:09:21.019
fifteen cents

0:09:21.019,0:09:24.339
we call that the equilibrium price

0:09:24.339,0:09:28.399
equilibrium equilibrium equilibrium

0:09:28.399,0:09:32.240
price is two dollars and fifteen cents a

0:09:32.240,0:09:34.970
pound and it's the price at which the

0:09:34.970,0:09:36.949
quantity supplied is equal to the

0:09:36.949,0:09:39.860
quantity demanded and so this this

0:09:39.860,0:09:42.980
quantity this this quantity where supply

0:09:42.980,0:09:44.750
or the quantity supplied is equal to the

0:09:44.750,0:09:46.550
quantity demanded that's the equilibrium

0:09:46.550,0:09:51.190
quantity equilibrium equilibrium

0:09:51.190,0:09:54.290
quantity and that right over here looks

0:09:54.290,0:09:57.370
like it's right about I don't know 2,200

0:09:57.370,0:10:01.850
2,200 pounds 2,200 pounds and assuming

0:10:01.850,0:10:03.500
nothing else changes this is a good

0:10:03.500,0:10:06.589
scenario for both the consumers and the

0:10:06.589,0:10:09.470
producers that they keep producing 2,200

0:10:09.470,0:10:11.510
they charge this price and everything's

0:10:11.510,0:10:13.940
happy all the apples get sold and none

0:10:13.940,0:10:16.750
of them go bad