so let's say we are in the Apple market
what I want to do in this video is think
about both demand and supply for the
apples at different prices so let's draw
ourselves a little graph here and we
already know this right over here the
vertical axis is the price axis and this
is we're going to say it's price per
pound and the horizontal axis this is
the quantity the quantity of apples and
let's put some tick marks here let's say
that's one dollar a pound
two dollars a pound three dollars a
pound four dollars a pound and five
dollars and let's say this is thousands
thousands of pounds produce and we have
to set a period so let's say this is all
for the next week and so this is 1000
pounds 2,000 3,000 4,000 and 5,000 now
let's think about both the supply and
the demand curves for this market or
potential supply and demand curves so
first I will do first I will do the
demand so if we if the price of Apple's
were really high and I encourage you to
always think about this when you're
about to draw your demand and supply
curves if the price of Apple's were
really high what would happen to
consumers well they say they wouldn't
demand much so the quantity demanded
would be low so if the price were high
maybe the quantity demanded is like 500
apples 500 apples and and once again I'm
being very careful to say the quantity
demanded is 500 apples I'm not saying
the demand is 500 apples the demand is
the entire relationship the actual
specific quantity we call that the
quantity demanded so at a price of $5
the quantity demanded would be about 500
maybe at a price of $1 the quantity
demanded would be maybe 4,000 pounds and
so our demand curve might look something
like this
might look something like that let me
draw it a little bit less bumpy so our
demand curve might look something like
that
I can label it that is our demand curve
and I'll think about our supply curve
well there's some price below which we
aren't even willing to produce apples so
let's say that's like 50 cents so at 50
cents that's where we're even just
willing to start producing
apples let's say if Apple if the price
of Apple's got to $1 we the quantity
we'd be willing to supply is about a
thousand pounds and it just keeps
increasing as the price increases so
this is the supply curve when I talk
about we I'm talking about all of the
suppliers in this market we could be
doing this for a specific supplier we
could be doing this for a specific
market we could be doing this for the
global Apple market however you want to
view it but for the sake of this video
let's assume it's like our little town
that is fairly isolated and all of that
now let's think about what happens in
different scenarios what happens if the
the the suppliers of the apples going
into that week for their own planning
purposes they just think for whatever
reason that they're only going to be
able to sell the apples at $1 per pound
and so given that given their given the
supply curve they only they're only they
only are able to supply only supply
1,000 pounds so this is what the
supplier is planned for and this is
where they set the price point at one
dollar at one dollar per pound now
what's going to happen in that scenario
well in that scenario they supplied
1,000 the quantity supplied is 1,000
pounds so let me write this down so I'll
do it in pink for this scenario so in
this area the quantity quantity supplied
quantity supplied is 1,000 pounds and
what is the quantity demanded quantity
demanded demanded demanded and this is
all a scenario where the price the price
or the initial price that the growers or
the producer set was one dollar per
pound one dollar per pound
well the quantity demanded one dollar
per pound is four thousand four thousand
pounds of apples four thousand pounds of
apples so what do we have here well here
we have a shortage we have a shortage of
we have a shortage a shortage of 3,000
apples at that price point at a dollar a
lot more people are going to want to buy
apples and these the producers just
didn't I guess did they didn't they
didn't
figure that out right and they didn't
produce enough apples now what will
naturally start happening if you have
the short you have all these people who
want to buy apples and you only have so
many apples there well what might happen
in the next period in the next week well
first of all those apples that are out
there they might get bid up so the
prices start going to start going up the
price is going to start going up people
are going to start bidding up the apples
they want them so badly they're going to
start bidding them up and as they start
getting bit up the producers are going
to say wow there's so many people we're
running out of apples we also need to
increase the quantity produced and so
the quantity the quantity will also go
up so the price will go up if you look
at from the from the suppliers point of
view the price will go up and the
quantity will go up they will move they
will move along this line there so maybe
in the next period there's less of a
shortage or they get slowed they move
they move away from that shortage
situation if the quantity if the price
and quantity increase a little bit so
maybe the price goes to $2 now and the
quantity goes to I don't know this looks
like about 1,900 1,900 pounds now of a
sudden you have less of a shortage and I
think you see that I'm getting to an
interesting point over here but I won't
go there just yet I won't go there just
yet now let's think about another
situation let's think about after this
happens price and quantity increases so
much that essentially overshoots this
interesting point right over here so in
the next week the suppliers all say wow
people want our apples so badly let's
just the price really high $3 and $3
we're really excited about producing
apples so we the suppliers we the
suppliers are going to produce let me do
this in a color I haven't used yet we
the suppliers are going to produce at $3
a pound we're hoping to sell 3,000
pounds of apples so this is where maybe
were they adjust to the next week but
what's going to happen there at a price
of $3 so that's this scenario right over
here the price of $3 so the price is now
the price is now $3 per pound
well now the quantity quantity supplied
the quantity supplied is going to be 3
thousand pounds three thousand three
thousand pounds I could write three
thousand pounds and what is the quantity
demanded the quantity demanded quantity
demanded is now much lower the price is
high now because consumers might want to
go buy other things or they too can't
afford an Apple or whatever it might be
and so now the quantity demanded that
looks like about not know 1300 1300
pounds 1300 pounds so what situation do
we have now well now we have a much
bigger supply or the quantity supplied
is much bigger than the quantity
demanded so now we face we face a
surplus so now we have a surplus
let me not draw that line there I want
to make it clear this is all the same
scenario we now have a surplus of what
is this seven hundred will get us to two
thousand we have a surplus of 1700
pounds of apples and now what happens in
a surplus situation well apples won't
stay good forever so maybe the producers
get a little desperate so you start they
start selling they start reducing the
price maybe to start attracting some
consumers so they start reducing the
price and also when they when they start
seeing that the price is going down and
you have this glut of apples and that
they're all going bad and they're not
getting sold the quantity the quantity
is also going to start going down
they'll produce fewer and fewer apples
and so we'll move here we'll move here
along the supply curve and as you
decrease as you decrease the price as
you decrease the price what's going to
happen to the demand curve well the
demand is going to go up so over here
the price was too high so there's it's
natural for the sellers to lower the
price and so when you lower the price it
also reduces the quantity we go this way
and when you lower the price it
increases demand you go that way if the
price to get from the get-go were too
low then you have this huge shortage
things get bit up the prices go up as
the price goes up the suppliers want to
produce more they move up the curve and
as the price boot goes up then the
people will demand less and you see that
it's all converging on a point right
over here
the two lines intersect and let me do
that in a it's all converging right over
there and that's the point at which
supply that's the price at which this is
the price at which the quantity supplied
will equal the quantity demanded and we
call this price we call this which looks
like for this scenario maybe about two
dollars and fifteen cents so let me just
write it there so two dollars and
fifteen cents
we call that the equilibrium price
equilibrium equilibrium equilibrium
price is two dollars and fifteen cents a
pound and it's the price at which the
quantity supplied is equal to the
quantity demanded and so this this
quantity this this quantity where supply
or the quantity supplied is equal to the
quantity demanded that's the equilibrium
quantity equilibrium equilibrium
quantity and that right over here looks
like it's right about I don't know 2,200
2,200 pounds 2,200 pounds and assuming
nothing else changes this is a good
scenario for both the consumers and the
producers that they keep producing 2,200
they charge this price and everything's
happy all the apples get sold and none
of them go bad