A Deeper Look at the Supply Curve
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0:00 - 0:05♪ [music] ♪
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0:10 - 0:12- [Alex] Today we turn to look
at the supply curve. -
0:12 - 0:14I'm going to move
through this material -
0:14 - 0:16a little bit more quickly
than through demand -
0:16 - 0:19because many
of the ideas are similar. -
0:23 - 0:27The supply curve represents
the behavior of sellers -
0:27 - 0:32and the supply curve is a function
that shows the quantity supplied -
0:32 - 0:34at different prices.
-
0:34 - 0:38The quantity supplied
is the quantity that producers -
0:38 - 0:42are willing and able to sell
at a particular price. -
0:42 - 0:45Okay, here comes our supply curve
just as before. -
0:45 - 0:49The horizontal reading tells us
the quantity supplied -
0:49 - 0:52at each price, in other words,
how much suppliers -
0:52 - 0:54are willing and able to sell
at each price. -
0:55 - 0:59At a price of $20 per barrel,
suppliers are willing and able -
0:59 - 1:03to sell 30 million barrels
of oil per day. -
1:03 - 1:06The vertical reading tells us
the minimum price -
1:06 - 1:09at which suppliers will sell
a given quantity. -
1:10 - 1:14For example
for the 50th millionth barrel of oil, -
1:14 - 1:20suppliers are willing and able
to sell that barrel of oil for $55. -
1:20 - 1:25Once again the vertical reading
tells us the minimum price -
1:25 - 1:28at which suppliers will sell
a given quantity. -
1:29 - 1:31As before, sometimes
the horizontal reading -
1:31 - 1:34is a little bit easier to understand
some problems, -
1:34 - 1:36other times the vertical reading
is a little bit easier. -
1:37 - 1:39So it's important that you
be comfortable reading -
1:39 - 1:42the supply curve in both ways.
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1:43 - 1:45Producer surplus
is just the producers' version -
1:45 - 1:47of consumer surplus.
-
1:47 - 1:50Remember, consumer surplus
is the consumers' gain -
1:50 - 1:55from exchange, so producer surplus
is the producers' gain -
1:55 - 1:56from exchange.
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1:56 - 2:00It's the difference
between the market price -
2:00 - 2:03and the minimum price
at which producers would be willing -
2:03 - 2:05to sell a given quantity.
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2:06 - 2:09Total producer surplus
is the sum of the producer surplus -
2:09 - 2:11of each seller.
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2:11 - 2:14As I'll show you in a minute,
what this means graphically -
2:14 - 2:19is that total producer surplus
is measured by the area -
2:19 - 2:22above the supply curve
and below the price. -
2:23 - 2:25Let's take a look.
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2:25 - 2:28Producer surplus is the area
above the supply curve -
2:28 - 2:30and below the price.
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2:30 - 2:34Here's our supply curve,
suppose that the price is $40 -
2:34 - 2:36and the producer surplus
at that price -
2:36 - 2:38is this blue area right here.
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2:39 - 2:41We could think about this
as the producer surplus -
2:41 - 2:44at the lowest cost to suppliers,
plus the producer surplus -
2:44 - 2:47at the second lowest,
plus the producer surplus -
2:47 - 2:50at the third lowest,
the fourth lowest and so forth. -
2:51 - 2:54Until we get
to the marginal supplier -
2:54 - 2:56and notice that the supplier
on the margin -
2:56 - 2:59earns no producer at all.
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2:59 - 3:02That is, this supplier, their costs
are just basically equal -
3:02 - 3:05to the price, they're not earning
any producer surplus. -
3:05 - 3:08Again, as with consumer surplus,
remember that we can, -
3:08 - 3:12and in fact we will be
calculating these areas -
3:12 - 3:15using our formula
for the area of a triangle. -
3:15 - 3:19As with demand curves,
supply curves can also shift. -
3:19 - 3:22Let's look at an increase
in supply first. -
3:23 - 3:25Which way is this curve
going to shift when we -
3:25 - 3:27have an increase in supply.
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3:27 - 3:31Keep in mind that the quantity
is down here, so which way -
3:31 - 3:33would be an increased quantity?
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3:34 - 3:35It's like this.
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3:35 - 3:37You might be
a little confused at first -
3:37 - 3:39because that's also down.
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3:39 - 3:41But it's to the right and down.
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3:42 - 3:43We can understand this
a little bit better by thinking -
3:43 - 3:46about exactly what it means.
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3:47 - 3:51It means that at any given price
with the new supplier, -
3:51 - 3:55with the increased supply,
suppliers are now willing to supply -
3:55 - 3:57a greater quantity.
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3:58 - 4:01At the price of $10,
using the old supply curve, -
4:01 - 4:03they were willing to sell 20 units.
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4:04 - 4:07At a price of $10
with the new supply curve -
4:07 - 4:10with the increased supply,
they're now willing -
4:10 - 4:12to sell 80 units.
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4:13 - 4:15We can also understand
an increase in supply -
4:15 - 4:17using the vertical reading.
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4:18 - 4:20What the increase
in supply tells us -
4:20 - 4:23is that for any quantity,
suppliers are now willing -
4:23 - 4:26to sell that quantity
at a lower price. -
4:27 - 4:29They used to need
at least $10 per unit -
4:29 - 4:31to sell this many units.
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4:32 - 4:35Now they're willing to sell
that same number of units -
4:35 - 4:37at a lower price.
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4:38 - 4:42So just thinking about this
intuitively, can you guess what -
4:42 - 4:46is the major factor
that is going to increase supply? -
4:48 - 4:51The major factor which is going
to increase supply -
4:51 - 4:53is a reduction in costs.
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4:54 - 4:57That's why you can also understand
this curve going down -
4:57 - 4:59as costs fall.
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4:59 - 5:03The reason supply increases
is that costs are falling. -
5:04 - 5:07So both of these directions
should now make sense to you. -
5:08 - 5:10What about a decrease in supply?
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5:10 - 5:12That of course, is just moving
the supply curve -
5:12 - 5:16in the opposite direction,
moving it to the left and up. -
5:16 - 5:18Again we can understand
what this means. -
5:19 - 5:23With the decrease in supply,
it says that suppliers -
5:23 - 5:26at the same price,
they're now willing to sell -
5:26 - 5:29a smaller quantity
than they were before. -
5:30 - 5:33At the same price, the quantity
that they are willing and able -
5:33 - 5:37to sell is going down,
a decrease in supply. -
5:38 - 5:41It also means that
at the same quantity, -
5:41 - 5:44suppliers now require
a higher price -
5:44 - 5:47to sell that quantity.
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5:47 - 5:51With a decreased supply,
suppliers require a higher price -
5:51 - 5:55to sell the same quantity
that they were supplying before. -
5:56 - 6:01So what would make suppliers
require a higher price -
6:01 - 6:03to sell the same quantity?
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6:04 - 6:07An increase in costs.
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6:07 - 6:09Let's look at this
in a little bit more detail. -
6:10 - 6:11I'm now going to give you
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6:11 - 6:14a list of important
supply shifters, -
6:14 - 6:16but as with the demand shifters,
the point here -
6:16 - 6:21is not to memorize the list,
the point is to understand -
6:21 - 6:25that the major factor determining
how supply shifts -
6:25 - 6:30is a change in costs,
that is, an increase in costs -
6:30 - 6:35reduces the supply, a decrease
in costs increases the supply. -
6:35 - 6:40Our task now is just to understand
how a whole bunch of factors, -
6:40 - 6:42how do they change costs.
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6:43 - 6:44Some of these are pretty obvious,
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6:44 - 6:46for example, technological
innovations -
6:46 - 6:48or changes in input prices.
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6:49 - 6:52A change in the price
of the input of labor, -
6:52 - 6:54that is a change in wages
can change costs, -
6:54 - 6:56the cost of production.
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6:57 - 7:01Taxes and subsidies, expectations,
the entry or exit of producers, -
7:01 - 7:03changes in opportunity costs.
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7:03 - 7:05Some of these
are a little bit harder -
7:05 - 7:08to understand how they change cost.
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7:08 - 7:10That's why in the next video,
I'm going to go through -
7:10 - 7:13each of them,
and give you some examples, -
7:13 - 7:15and step through them one by one.
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7:15 - 7:17See you then.
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7:17 - 7:19- [Narrator] If you want
to test yourself, -
7:19 - 7:21click "Practice Questions."
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7:22 - 7:25Or if you're ready to move on,
just click "Next Video." -
7:25 - 7:29♪ [music] ♪
- Title:
- A Deeper Look at the Supply Curve
- Description:
-
{'type': u'plain'}
- Video Language:
- English
- Team:
- Marginal Revolution University
- Project:
- Micro
- Duration:
- 07:30
Martel Espiritu edited English subtitles for A Deeper Look at the Supply Curve | ||
Martel Espiritu edited English subtitles for A Deeper Look at the Supply Curve | ||
Martel Espiritu edited English subtitles for A Deeper Look at the Supply Curve | ||
MRU2 edited English subtitles for A Deeper Look at the Supply Curve | ||
MRU2 edited English subtitles for A Deeper Look at the Supply Curve |