[intense music]
[music gets louder]
Hey how you doing students, this is Mr. Clifford.
Welcome to ECON movies. Today we're going to look at the economics in Indiana Jones.
[Indiana Jones theme song]
As you know, Dr. Jones isn't an economist, he's an archaeologist.
We do not follow maps to buried treasure and X never, ever marks the spot.
Sounds pretty boring. Let's look at one of the most important concepts
in all of economics. Demand and supply. It all starts with buyers and sellers.
You bring me muachi.
Here he is.
This muachi's a real small guy.
They come together to negotiate a price that works for both of them.
The buyer wants to pay the lowest price possible,
but the seller doesn't have to accept that offer.
The diamond Lao, the deal was for the diamond.
Now if the buyer really wants that product, he's going to have to increase
the price to something the seller is willing to take.
Oh Lao!
In this example, there's just one buyer and one seller.
When you start analyzing multiple buyers and sellers,
then you're looking at markets.
To understand markets, Indiana Jones needs to find somebody to teach him
demand and supply.
[suspenseful music]
[professor teaching]
[music intensifies]
[professor getting louder]
To learn about demand and supply, let's pick a market we can analyze.
Let's pick something like pet snakes.
Snakes. Why did it have to be snakes?
Let's start with demand. To have demand, buyers must be willing and able
to buy pet snakes. Now obviously some people like pet snakes and some don't.
There's a big snake in the plane Jack!
Oh that's just my pet snake Reggie.
I hate snakes Jack. I hate them!
When the price is really high, let's say $100 for a pet snake,
people don't want to buy very many snakes.
In this case, only 10 would be purchased.
After all, there's a bunch of substitute pets you could buy instead.
You could buy a pet tarantula, a pet elephant, or a pet camel.
(Indiana Jones) No camels.
Okay, okay no camels, no camels.
If the price was lower for snakes, consumers would be willing and able
to buy more snakes.
In this case, if the price is down to 2, then consumers will want to buy 300.
This downward sloping demand curve shows you the law of demand.
The inverse relationship between price and quantity demanded.
The supply curve on the other hand is upward sloping.
It takes time, energy, and money to breed, raise, and sell pet snakes.
At a low price, sellers wouldn't want to sell very many snakes
because it's not profitable.
So at a low price of 2, the quantity supplied would only be 10 snakes.
At a high price of $100, sellers would have more incentive
to bring a bunch of snakes to the market.
[upbeat music]
Now we're finally there. It's time to put demand and supply together.
X marks the spot.
Let's analyze this graph.
At a low price of 2, the quantity demanded,
the amount buyers want to buy, will be a lot higher than the quantity supplied.
At that price, buyers want to buy 300, but sellers would only want to sell 10.
This is called a shortage. If the price is up here at 100,
then sellers would want to sell a bunch of snakes,
but the buyers would only want to buy a few of them.
This is called a surplus.
At $20, the quantity demanded equals the quantity supplied,
so there's no shortage and there's no surplus. This is called equilibrium.
Equilibrium is like the Holy Grail of supply and demand.
That's the cup of a carpenter.
Now you understand the graph and equilibrium, but we're not done.
The supply and demand graph is a great tool for figuring out
what's going to happen when there's a change in a market.
For example, let's say that snakes and monkeys are substitute pets.
(young boy) Where did this animal come from?
[children laughing]
(girl) Oh no.
[girl laughing nervously]
Now assume that the price of pet monkeys falls.
How will this affect the price and quantity of pet snakes?
It doesn't affect the supply curve for pet snakes at all.
It affects the demand.
Consumers that would normally buy pet snakes would now turn around
and go buy more pet monkeys because their price is cheaper.
This would decrease the demand for pet snakes,
shifting the demand curve to the left.
At every possible price, people are buying less pet snakes
because they're buying monkeys instead.
The graph shows the new equilibrium and the fact that the price
and quantity will fall. Wait, why? Why does the price go down?
After the demand curve shifted left, what would happen if sellers
kept trying to sell snakes at the old equilibrium of $20?
There would be a surplus. There'd be way more snakes out in the market
than consumers want to buy.
[intense music]
[man screaming]
Sellers would compete with each other because they want to get rid
of all these excess snakes which would drive the price down
to the new equilibrium. Did you get that?
Let's show a change again except this time assume the people
in this market have a pest control problem.
(Indiana Jones) Oh rats.
[intense violin music]
When people go to the pet store, they figure let's get a pet
that can help us get rid of rats.
What'll happen to the demand for pet snakes?
If you said increase or shift right,
you have chosen wisely.
The graph shows the new equilibrium and says the price and the quantity
will both go up.
Why does the price go up? After the demand curve shifted to the right,
now the quantity demanded is way greater than the quantity supplied.
This is a shortage. Consumers want more pet snakes
so they can eat the rats, but the sellers are running out of snakes to sell.
Competition between buyers would bid up the price of snakes
and give sellers more of an incentive to bring more on the market.
Price would go up, quantity would go up.
Understanding these markets is actually pretty easy
because it's just the collective behavior of buyers and sellers.
In the end, I don't think Indiana Jones would want to buy a pet snake
or a pet monkey.
I think he'd prefer a dog.
We named the dog Indiana.
Dog?
(laughter) You are named after the dog?
[laughter]
Got a lot of fond memories of that dog.
[Indiana Jones theme song]
[upbeat music]