Changes in Market Equilibrium

How the equilibrium price or quantity might change due to changes in supply or demand

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