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Main content
Current time:0:00Total duration:6:58
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Video transcript

in the last video we introduced ourselves to the law of supply and it was a fairly common sense idea that if we hold all else equal that if the price of something goes up there's more incentive for more producers to produce it or a given producer to produce more of it and we saw that as the price goes up we moved along the supply curve and the quantity produced went up now what I want to talk about in this video is all the things we held equal in the last video and the first of these I'll call this the price price of inputs or another way to think about it is the cost of production so if the price of inputs maybe the price of labor the people who would have to pick the grapes or our fuel that we need to transport the grapes or the land if any of that increased that at a given price point we would make less money there's less incentive for us to do it especially if it's this is true only for grapes maybe we'll say ok if it's now more expensive to get grape seeds maybe I'll start planting something else because I'm not getting as much profit per pound of grape so if the price of my inputs or for my the price of my car or the 50 if the size of my costs go up at any given price point I'd want to produce less so if my price puts the price of inputs go up my supply the supply would go down so if this becomes at this price point I'd make less money so I would produce less or maybe I would produce other things so this would I would [ __ ] the whole supply curve would shift would shift to would shift to the left and also even the minimum price I would need to supply any of it would also go up when you shift the curve to the left because now all of a sudden it costs me more to produce even that first unit and likewise if my price of my inputs went down now all of a sudden at any given price point producing grapes would become more profitable and I would have more incentive to maybe produce grapes relative to other things and use more land for grapes than other things and then you would have the whole curve shift to the right now let's think about now let's think about related goods so what happens with the price of related good and we have to put our when we think about this we don't want to think of it from a demand point of view because we're talking about supply you want to think about it from the producers point of view so when we think about related Goods here we want to think about substitutes for production so maybe I'm a farmer and I know very little bit about farming so I don't know this as possible but maybe on my land I'm saying well some of my land is going to be for grapes and some of it is going to be for blueberries and so what would happen if the if the price of a related good in particular blueberries what if what would happen if the price of blueberries went up well if the price of blueberries went up then I would say wow you know maybe I can do better with blueberries and I would allocate more of my land to blueberries than to grapes and so once again if the price of related goods is well it depends which related Goods but if the price of productive substitutes so price of other things I could produce other things I can produce if the price of other things I can produce goes up goes up then my supply of grapes once again my supply of grapes would go down and the important thing is is in any of these circumstances literally just think it through do not just look at what I'm writing here and just try to memorize in some form way shape or form these this is really just a way to think about things hey obviously if I can make more money off of blueberries now all of a sudden I'm going to allocate more of my land to blueberries then to grapes supply of grapes will go down now let's think about what happens with the number of suppliers number of suppliers and this one is this is pretty common sense the more people they are supplying the higher the supply would be so the numbers of so if the number of suppliers goes up and now you wouldn't imagine this is a curve maybe for the aggregate supply so if the number of suppliers go up then the aggregate supply would go up at any given price point if the number of suppliers were to go down then the aggregate supply would go down at any given price point so this one hopefully is somewhat obvious then we could think about things like technology and so this is just maybe there's some innovation some new type of seed that get with the same amount of work the same amount of land can produce that many more grapes so if you have technological improvements so technological improvements I'm assuming we're not going to go into some type of Dark Ages and we have technological improvements then that will that will also make the supply that will also make the supply go up you can also think of it as it might make it cheaper to produce so it's kind of the same thing here the price of inputs might go down so that would make your supply go up or you could just say hey look there's just going to be more grapes popping off of these new types of vines that we got so we're just going to produce more grapes and then the last one I'll cover and it's a little bit strange in the grape analogy is the expected future prices so the expected future prices expected future prices price expectations and let's take let's go away from the grapes because grapes are they're perishable goods they go bad it's not like you can save goods to Purdue to to use them later but if let's say you are an oil producer and oil is something that you can store and you can use it later if you expected oil prices if you expected oil prices to be neutral today and then tomorrow all of a sudden you are sure that oil prices are going to go up in the future you're sure that a year from now oil prices are just going to go through the roof what's your incentive well you should hoard all of your oil do not sell it today and wait to sell it in the future if you're sure that's what's going to happen so if you expect expect you if you're if you if there's a change in expected future prices so if you go from from neutral to expecting prices go up prices go up in the future then you're going to hoard your goods you can't hoard grapes because the grapes will just go bad you might be able to I don't know turn them into wine or something but if we're talking about something like oil you would say hey why should I pump all of the fixed amount of oil in the ground today to sell it at today's lower prices I'm going to I'm going to lower the supply today and so I can sell it in the future so if the expected future prices go from you kind of your neutral to you expect future prices to go up dramatically then current supply and that's I'm just going to emphasize by writing the word current current supply current supply will go down so you can hoard it to sell it in the future