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Main content
Current time:0:00Total duration:6:16
AP.MACRO:
MKT‑2 (EU)
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MKT‑2.F (LO)
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MKT‑2.F.1 (EK)
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MKT‑2.G (LO)
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MKT‑2.G.1 (EK)

Video transcript

what we're going to do in this video is think about all of the different ways that a supply curve or a demand curve can shift and that's why we actually have eight versions of the exact same diagram each of them is showing where we are right now let's say in a given region in the ice cream market it's important to title your grass especially if you were taking some type of a standardized exam like an AP exam and in the vertical axis we have P representing price and then the horizontal axis Q representing quantity we have our upward sloping supply curve I'm calling this s1 just as kind of our starting point and then we have our downward sloping demand curve d1 and where they intersect that gives us our equilibrium price p1 and our equilibrium quantity q1 and once again if you were taking some type of a standardized test it's important that you label all of these things including p1 and q1 and show this dotted line where two intersects the horizontal axis is q1 and where it intersects the vertical axis is p1 now with that out of the way let's think about what happens to the equilibrium price and the equilibrium quantity given different shifts in the supply or the demand curve or both of them so in this first scenario let's imagine that all of a sudden a major ice cream producer enters into the market so here we're going to this first one we're going to think about a situation where the supply goes up so one way to think about it is at any given price people are willing to supply more quantity so here we would have our supply curve shift to the right I'll call this s2 right over here it's shifting to the right and down and so given this what happens to our equilibrium price and our equilibrium quantity well you see it right over here if I draw a dotted line we see our equilibrium price p2 is lower and our equilibrium quantity Q - Q - is higher once again assuming that we have a downward sloping demand curve like this which is what you would typically see and so in this case let me just write it here we have our quantity or actually let me write it this way we have our price goes down and our quantity goes up all right now let's do this example and let's imagine the other way let's imagine in this scenario our supply goes down what is going to happen to this graph and in particular what's going to happen to our equilibrium price and our equilibrium quantity well in this situation for a given price people are willing to supply left less that's how I'd like to think about it so we would have a shift to the left and up and so we could call this supply curve 2 right over here and then what is our equilibrium point it's right over there it is right over there and so this would be our new price it has gone up and this would be our new quantity it has gone down so price has gone up and quantity has gone down and once again in either of these scenarios hopefully this feels a little bit like common sense if you have a supplier enter into the market there's gonna be quantity might go up and there's more competition and so one wants the suppliers and so the price would go down here where the supply goes down maybe some of the icecream stores close down well now the quantity will go down there's just less people supplying but the price goes up for the ice-cream that's there the equilibrium price is going to be higher now let's do the same thing with the demand curve let's think about a situation where first let's think about a scenario where demand goes up demand goes up what is going to happen in what is going to happen in this world well demand might go up because maybe there's some type of report that ice cream is much healthier for you than expected and so at a given price people are willing to people are willing to demand higher quantity so for example that prize people would demand a higher quantity and so we would have a shift to the right and up let's call this d2 right over here and this is our new equilibrium point and then notice notice what has just happened here at our new equilibrium point this is q2 and then this right over here is this right over here is p2 our new price our new equilibrium price and you equilibrium quantity in this situation where demand goes up both price and both price and quantity are going to go up assuming we have this upward sloping supply curve again and once again that makes sense more people just want to buy ice cream the total the the supply curve dynamics have not changed so we're going to move along that supply curve to the right and up so both price and quantity go up well if demand goes down you could imagine the opposite is going to happen so here if we have demand goes down let's say a big study comes out that ice cream is even unhealthier than we originally thought well then at a given price people are going to want they're going to demand less ice cream and so our demand curve would shift to the left and down so we'll call this d2 right over here and then we can see our equilibrium price and quantity so let's show that new equilibrium price is p2 right over here and that our new equilibrium quantity is q2 and notice both price and quantity go down people just don't want to buy ice cream as much because they think it's unhealthy now so price goes down and quantity goes down
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