Market Equilibrium

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