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Main content
Current time:0:00Total duration:9:05
AP.MACRO:
MKT‑2 (EU)
,
MKT‑2.F (LO)
,
MKT‑2.F.1 (EK)
,
MKT‑2.G (LO)
,
MKT‑2.G.1 (EK)
AP.MICRO:
MKT‑4 (EU)
,
MKT‑4.B (LO)
,
MKT‑4.B.1 (EK)
,
MKT‑4.B.2 (EK)

Video transcript

what I want to do in this video is think about how supply and/or demand might change based on changes in some factors in 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 curve 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 clearly impacts the suppliers all of a sudden they'll have fewer apples succumbing to disease and so they will be able to produce more apples so at any given price point at any given price point this will shift the quantity supplied up so at any given price point it will shift the quantity of apples supplied up or you could say that the entire supply curve is shifted is shifted to the right or supply goes up and let me draw the entire curve and obviously if now we have disease resistant apples even our minimum price to start producing apples is lower now when we had the supply curve shift in this way when it shifted to the right what happens to the equilibrium price well our old equilibrium price was right over here our new equilibrium price so this is the 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 price went down and you don't have to you could have probably reasoned through that before taking an econ class but this way at least you have some way to think about it and think about how the curves are changing now let's think about this scenario study so this is before so in all of these examples this is the graph is what happened before the news came out or the event came out so this is before and then a study is released on how Apple's prevent cancer so what is that likely to do well no one wants cancer and so more people are going to 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 so in a given price people will want to get people will want a hot they will demand a higher quantity of apples the quantity of apples demanded at a given price will go up so the demand curve will shift to the right or you could say the demand would go up so that's the new demand curve so here demand goes up demand goes up and let me write over here where in this situation supply went up here demand goes up and what happens to the price well this is our old equilibrium price this is our new equilibrium price the price clearly went up so the price went up and actually over here let's think about the quantity - in this first situation this is our old equilibrium quantity this is our new equilibrium quantity quantity quantity went up which makes sense you have fewer apples dying price went down more people want to buy them here price went up and what happened to quantity what happened to quantity quantity this was our old equilibrium quantity this is our new equilibrium quantity quantity also went up 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 and for the sake of this let's assume that 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're assume it's a good advertising campaign this clearly will make demand demand go up for sorry it'll make demand go up for cider for for pear cider relative to apple cider most people when they think of cider they think of apple cider now the sudden pear cider comes out it'll make demand for apple cider go down so this is Apple apple cider apple cider demand will go down now if apple cider demand goes down the apple cider producers are going to demand fewer apples so this is this is so this is going to go mean Apple demand Apple demand will go down at any given price point Apple demand will go down so Apple demand the demand curve will shift to the left I should say at any given price point the quantity demanded will go down and so the entire demand curve the entire relationship will shift to the left will shift to the left now that's not all that might happen because if you think about it from the suppliers point of view and I don't know if this really is the case but let's assume that the farmers who grow apples can also grow pears well they might say well why you know now that there's more demand for pears they're doing this advertising campaign I want to 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 supply of apples the supply of apples so apples supply want to be clear here that we're talk about apple the Apple supply might go down so it will also shift to the left so they're both shifting to the left they're both shifting to the left now what is likely to happen here so the demand went down and the supply went down they both shifted to the left well here the way I drew it this was my 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 did change so let's see this is our old equilibrium quantity this is our new equilibrium quantity this 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 assumed that the farmers actually also produced fewer apples it turns out you could I could have drawn this in multiple ways actually let me draw it in 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 so let's say the supply shifts all the way the supply shifts really far back now what happened well now our equilibrium price because the the reduction in supply was it was kind of more extreme than the the reduction in demand now and it really depends on how the curve shapes and all of that the main thing is to reason through it or to actually see what the actual results are but in this situation all of a sudden that the price 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 of is that the quantity will go down but the price went up because this effect the supply of the supply went down much more than the demand did and so the price went up now I could have done another scenario I could have done another scenario or maybe the supply barely budged or maybe the demand went down dramatic let me draw do it with the supply barely budges 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 once again quantity definitely goes down so in all of the scenarios the quantity will go down but I've just done three 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 the price based on this you would actually have to look at the actual curve and see what the new equilibrium prices are now let's look at this with the Apple pickers unionize demand and the demand wage increases so this is a this is an issue for the suppliers so all of a sudden one of their inputs one of their costs of production which is labor has gone up so if their cost of production has gone up now at a given price point they are 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 they will supply a lower quantity so this is going to lower supply this is going to lower supply and when you lower supply when you lower supply what's going to happen well your equilibrium quantity your equilibrium quantity this was our old one this is our new one equilibrium quantity definitely goes down the quantity went down and what happened to the price we're 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 one well I should have told you is the beginning till you should have tried to do these yourself and then see what I had to say about them but I encourage you to try this out with different situations think of situations yourself and even think about different markets other than the Apple market
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