WEBVTT

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so let's say we are in the Apple market

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what I want to do in this video is think

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about both demand and supply for the

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apples at different prices so let's draw

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ourselves a little graph here and we

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already know this right over here the

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vertical axis is the price axis and this

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is we're going to say it's price per

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pound and the horizontal axis this is

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the quantity the quantity of apples and

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let's put some tick marks here let's say

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that's one dollar a pound

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two dollars a pound three dollars a

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pound four dollars a pound and five

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dollars and let's say this is thousands

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thousands of pounds produce and we have

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to set a period so let's say this is all

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for the next week and so this is 1000

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pounds 2,000 3,000 4,000 and 5,000 now

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let's think about both the supply and

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the demand curves for this market or

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potential supply and demand curves so

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first I will do first I will do the

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demand so if we if the price of Apple's

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were really high and I encourage you to

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always think about this when you're

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about to draw your demand and supply

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curves if the price of Apple's were

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really high what would happen to

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consumers well they say they wouldn't

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demand much so the quantity demanded

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would be low so if the price were high

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maybe the quantity demanded is like 500

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apples 500 apples and and once again I'm

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being very careful to say the quantity

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demanded is 500 apples I'm not saying

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the demand is 500 apples the demand is

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the entire relationship the actual

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specific quantity we call that the

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quantity demanded so at a price of $5

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the quantity demanded would be about 500

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maybe at a price of $1 the quantity

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demanded would be maybe 4,000 pounds and

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so our demand curve might look something

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like this

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might look something like that let me

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draw it a little bit less bumpy so our

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demand curve might look something like

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that

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I can label it that is our demand curve

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and I'll think about our supply curve

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well there's some price below which we

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aren't even willing to produce apples so

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let's say that's like 50 cents so at 50

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cents that's where we're even just

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willing to start producing

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apples let's say if Apple if the price

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of Apple's got to $1 we the quantity

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we'd be willing to supply is about a

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thousand pounds and it just keeps

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increasing as the price increases so

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this is the supply curve when I talk

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about we I'm talking about all of the

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suppliers in this market we could be

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doing this for a specific supplier we

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could be doing this for a specific

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market we could be doing this for the

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global Apple market however you want to

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view it but for the sake of this video

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let's assume it's like our little town

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that is fairly isolated and all of that

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now let's think about what happens in

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different scenarios what happens if the

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the the suppliers of the apples going

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into that week for their own planning

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purposes they just think for whatever

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reason that they're only going to be

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able to sell the apples at $1 per pound

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and so given that given their given the

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supply curve they only they're only they

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only are able to supply only supply

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1,000 pounds so this is what the

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supplier is planned for and this is

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where they set the price point at one

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dollar at one dollar per pound now

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what's going to happen in that scenario

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well in that scenario they supplied

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1,000 the quantity supplied is 1,000

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pounds so let me write this down so I'll

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do it in pink for this scenario so in

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this area the quantity quantity supplied

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quantity supplied is 1,000 pounds and

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what is the quantity demanded quantity

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demanded demanded demanded and this is

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all a scenario where the price the price

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or the initial price that the growers or

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the producer set was one dollar per

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pound one dollar per pound

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well the quantity demanded one dollar

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per pound is four thousand four thousand

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pounds of apples four thousand pounds of

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apples so what do we have here well here

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we have a shortage we have a shortage of

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we have a shortage a shortage of 3,000

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apples at that price point at a dollar a

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lot more people are going to want to buy

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apples and these the producers just

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didn't I guess did they didn't they

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didn't

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figure that out right and they didn't

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produce enough apples now what will

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naturally start happening if you have

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the short you have all these people who

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want to buy apples and you only have so

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many apples there well what might happen

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in the next period in the next week well

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first of all those apples that are out

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there they might get bid up so the

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prices start going to start going up the

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price is going to start going up people

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are going to start bidding up the apples

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they want them so badly they're going to

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start bidding them up and as they start

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getting bit up the producers are going

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to say wow there's so many people we're

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running out of apples we also need to

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increase the quantity produced and so

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the quantity the quantity will also go

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up so the price will go up if you look

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at from the from the suppliers point of

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view the price will go up and the

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quantity will go up they will move they

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will move along this line there so maybe

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in the next period there's less of a

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shortage or they get slowed they move

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they move away from that shortage

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situation if the quantity if the price

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and quantity increase a little bit so

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maybe the price goes to $2 now and the

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quantity goes to I don't know this looks

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like about 1,900 1,900 pounds now of a

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sudden you have less of a shortage and I

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think you see that I'm getting to an

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interesting point over here but I won't

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go there just yet I won't go there just

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yet now let's think about another

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situation let's think about after this

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happens price and quantity increases so

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much that essentially overshoots this

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interesting point right over here so in

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the next week the suppliers all say wow

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people want our apples so badly let's

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just the price really high $3 and $3

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we're really excited about producing

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apples so we the suppliers we the

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suppliers are going to produce let me do

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this in a color I haven't used yet we

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the suppliers are going to produce at $3

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a pound we're hoping to sell 3,000

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pounds of apples so this is where maybe

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were they adjust to the next week but

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what's going to happen there at a price

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of $3 so that's this scenario right over

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here the price of $3 so the price is now

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the price is now $3 per pound

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well now the quantity quantity supplied

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the quantity supplied is going to be 3

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thousand pounds three thousand three

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thousand pounds I could write three

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thousand pounds and what is the quantity

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demanded the quantity demanded quantity

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demanded is now much lower the price is

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high now because consumers might want to

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go buy other things or they too can't

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afford an Apple or whatever it might be

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and so now the quantity demanded that

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looks like about not know 1300 1300

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pounds 1300 pounds so what situation do

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we have now well now we have a much

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bigger supply or the quantity supplied

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is much bigger than the quantity

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demanded so now we face we face a

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surplus so now we have a surplus

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let me not draw that line there I want

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to make it clear this is all the same

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scenario we now have a surplus of what

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is this seven hundred will get us to two

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thousand we have a surplus of 1700

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pounds of apples and now what happens in

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a surplus situation well apples won't

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stay good forever so maybe the producers

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get a little desperate so you start they

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start selling they start reducing the

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price maybe to start attracting some

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consumers so they start reducing the

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price and also when they when they start

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seeing that the price is going down and

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you have this glut of apples and that

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they're all going bad and they're not

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getting sold the quantity the quantity

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is also going to start going down

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they'll produce fewer and fewer apples

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and so we'll move here we'll move here

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along the supply curve and as you

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decrease as you decrease the price as

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you decrease the price what's going to

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happen to the demand curve well the

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demand is going to go up so over here

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the price was too high so there's it's

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natural for the sellers to lower the

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price and so when you lower the price it

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also reduces the quantity we go this way

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and when you lower the price it

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increases demand you go that way if the

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price to get from the get-go were too

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low then you have this huge shortage

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things get bit up the prices go up as

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the price goes up the suppliers want to

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produce more they move up the curve and

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as the price boot goes up then the

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people will demand less and you see that

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it's all converging on a point right

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over here

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the two lines intersect and let me do

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that in a it's all converging right over

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there and that's the point at which

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supply that's the price at which this is

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the price at which the quantity supplied

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will equal the quantity demanded and we

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call this price we call this which looks

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like for this scenario maybe about two

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dollars and fifteen cents so let me just

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write it there so two dollars and

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fifteen cents

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we call that the equilibrium price

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equilibrium equilibrium equilibrium

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price is two dollars and fifteen cents a

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pound and it's the price at which the

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quantity supplied is equal to the

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quantity demanded and so this this

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quantity this this quantity where supply

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or the quantity supplied is equal to the

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quantity demanded that's the equilibrium

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quantity equilibrium equilibrium

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quantity and that right over here looks

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like it's right about I don't know 2,200

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2,200 pounds 2,200 pounds and assuming

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nothing else changes this is a good

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scenario for both the consumers and the

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producers that they keep producing 2,200

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they charge this price and everything's

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happy all the apples get sold and none

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of them go bad