0:00:00.309,0:00:02.545 We've talked a lot about demand 0:00:02.545,0:00:04.820 So now let's talk about supply! 0:00:04.820,0:00:06.711 And we'll use grapes for this example 0:00:06.711,0:00:09.479 We'll pretend to be grape farmers of some sort 0:00:09.479,0:00:11.355 So I'll start by introducing you 0:00:11.355,0:00:13.723 (and maybe I'll do it in purple in honor of the grapes) 0:00:13.723,0:00:19.389 to the law of supply which, like the law of demand, 0:00:19.389,0:00:21.014 makes a lot of intuitive sense 0:00:21.014,0:00:22.639 If we hold all else equal 0:00:22.639,0:00:23.790 and in the next few videos 0:00:23.790,0:00:24.827 we'll talk about what happens 0:00:24.827,0:00:26.418 when we change some of those things 0:00:26.418,0:00:27.655 that we'll hold equal right now 0:00:27.655,0:00:29.559 but if you hold all else equal 0:00:29.559,0:00:31.333 and the only thing that you're doing 0:00:31.333,0:00:33.347 is you're changing price 0:00:33.347,0:00:35.318 then the law of supply says 0:00:35.318,0:00:37.172 that if the price goes up 0:00:37.172,0:00:38.475 I'll just say p for price 0:00:38.475,0:00:41.000 if the price goes up then the supply 0:00:41.000,0:00:42.469 and let me be careful 0:00:42.469,0:00:48.646 the quantity supplied goes up 0:00:48.646,0:00:50.225 And then you can imagine 0:00:50.225,0:00:52.080 if the price goes down 0:00:52.080,0:00:56.819 the quantity supplied goes down 0:00:56.819,0:00:58.630 And you might already notice that 0:00:58.630,0:01:02.816 that I was careful to say quantity supplied 0:01:02.816,0:01:05.377 And it's just like we saw with demand 0:01:05.377,0:01:08.151 When we talk about demand going up or down 0:01:08.151,0:01:12.731 we're talking about the entire price/quantity relationship shifting 0:01:12.731,0:01:15.906 When we're talking about a particular quantity demanded 0:01:15.906,0:01:17.299 we say quantity demanded 0:01:17.299,0:01:18.333 we don't just say demand 0:01:18.333,0:01:19.933 This is the exact same thing for supply 0:01:19.933,0:01:21.618 When we're talking about a particular quantity 0:01:21.618,0:01:23.244 we'll be careful to say quantity 0:01:23.244,0:01:24.822 If we talk about supply increasing 0:01:24.822,0:01:27.562 we're talking about the entire relationship shifting 0:01:27.562,0:01:29.933 either up or down 0:01:29.933,0:01:33.308 So let's just make sure this makes intuitive sense for us 0:01:33.308,0:01:35.434 and I think it probably does. 0:01:35.434,0:01:37.547 Let's think about ourselves as grape farmers 0:01:37.547,0:01:40.171 and I'll make a little supply schedule right over here 0:01:40.171,0:01:41.843 Supply... 0:01:41.843,0:01:46.556 so grape supply schedule which is really just a table 0:01:46.556,0:01:49.482 showing the relationship between, all else equal, 0:01:49.482,0:01:52.222 the price and the quantity supplied 0:01:52.222,0:01:55.241 So let's label some scenarios over here 0:01:55.241,0:01:56.820 just like we did with the demand schedule 0:01:56.820,0:02:01.882 Scenarios... and let's put our price over here 0:02:01.882,0:02:08.197 and this'll be in price/lb the per pound price of grapes 0:02:08.197,0:02:11.541 and this is the quantity produced over the time period 0:02:11.541,0:02:13.191 and whenever we do any of these 0:02:13.191,0:02:14.926 supply or demand schedules 0:02:14.926,0:02:16.905 we're talking over a particular time period 0:02:16.905,0:02:17.787 It could be per day. 0:02:17.787,0:02:19.200 It could be per month. 0:02:19.200,0:02:20.312 It could be per year. 0:02:20.312,0:02:22.547 but that's the only way to make some sense of 0:02:22.547,0:02:25.539 OK, what is the quantity per day going to be produced, 0:02:25.539,0:02:26.658 if that's the price? 0:02:26.658,0:02:27.470 We didn't say per day... 0:02:27.470,0:02:29.908 We don't know what we're talking about. 0:02:29.908,0:02:36.735 Quantity supplied... 0:02:36.735,0:02:41.982 And so let's just say Scenario A 0:02:41.982,0:02:47.281 If the price per pound of grapes is 50 cents 0:02:47.281,0:02:48.856 if it's 50 cents per pound 0:02:48.856,0:02:52.617 actually let me just do round numbers 0:02:52.617,0:02:54.243 but you get the idea 0:02:54.243,0:02:55.566 The price per pound is $1. 0:02:55.566,0:02:57.122 Let's just say for us 0:02:57.122,0:02:59.815 we consider that to be a relatively low price . 0:02:59.815,0:03:04.483 And so we'll only kind of do the easiest land 0:03:04.483,0:03:06.267 our most fertile land where it's easy to produce grapes 0:03:06.267,0:03:10.241 and maybe the fertile and cheap land 0:03:10.241,0:03:12.267 so no-one else wants to use the land for other things 0:03:12.267,0:03:13.910 it's only good for growing grapes 0:03:13.910,0:03:17.370 And so we will provide, 0:03:17.370,0:03:22.432 --so this is price per pound-- 0:03:22.432,0:03:26.913 In that situation we can produce 1000 lbs in this year. 0:03:26.913,0:03:28.533 And I've never been a grape farmer, 0:03:28.533,0:03:29.398 so I actually don't know 0:03:29.398,0:03:31.069 if that's a reasonable amount or not 0:03:31.069,0:03:33.229 but I'll just go with it, 1000 lbs. 0:03:33.229,0:03:35.713 Now, let's take Scenario B 0:03:35.713,0:03:38.268 Let's say the price goes up to $2 0:03:38.268,0:03:39.847 Well now not only would we produce 0:03:39.847,0:03:41.193 what we were producing before, 0:03:41.193,0:03:44.235 but we might now wanna buy some more land 0:03:44.235,0:03:46.464 land that might have had other uses 0:03:46.464,0:03:49.483 land that's maybe not as productive for grapes 0:03:49.483,0:03:52.223 but we would because now we can get more for grapes 0:03:52.223,0:04:03.113 and so maybe now we're willing to produce 2000 lbs. 0:04:03.113,0:04:03.995 And we could keep going 0:04:03.995,0:04:06.480 the same dynamics keep happening 0:04:06.480,0:04:12.238 so let's say if the price were $3 per pound 0:04:12.238,0:04:13.910 now we do want to produce more, 0:04:13.910,0:04:16.882 maybe now we're even willing to work a little harder, 0:04:16.882,0:04:19.251 or plant things closer to each other, 0:04:19.251,0:04:23.400 or maybe I'll get even more land involved than 0:04:23.400,0:04:26.000 I would've otherwise used for other crops 0:04:26.000,0:04:30.582 and so then I'm gonna produce 2500 pounds 0:04:30.582,0:04:33.252 And I'll do one more scenario. 0:04:33.252,0:04:34.646 Let's say Scenario D. 0:04:34.646,0:04:37.084 the price goes to $4 a pound 0:04:37.084,0:04:40.501 Same dynamic, I'll stop planting other crops. 0:04:40.501,0:04:42.326 And use them now for grapes 0:04:42.326,0:04:44.194 because grape prices are so high 0:04:44.194,0:04:50.000 and so I will produce 2750 pounds 0:04:50.000,0:04:53.245 And so we can draw a supply curve 0:04:53.245,0:04:56.217 just as we have drawn demand curves 0:04:56.217,0:05:00.257 and it's the same exact convention 0:05:00.257,0:05:03.098 which I'm not a fan of putting price on the vertical axis 0:05:03.098,0:05:04.367 because as you see, 0:05:04.367,0:05:07.154 we tend to talk about price as an independent variable. 0:05:07.154,0:05:08.895 we don't always talk about it that way 0:05:08.895,0:05:10.753 and in most of math and science 0:05:10.753,0:05:12.750 you put the independent variable on the horizontal axis 0:05:12.750,0:05:14.677 but the convention in economics is 0:05:14.677,0:05:16.767 to put it on the vertical axis. 0:05:16.767,0:05:18.299 So price on the vertical axis 0:05:18.299,0:05:22.897 and so this is really price per pound 0:05:22.897,0:05:28.210 And then on the horizontal axis quantity, produced. 0:05:28.210,0:05:32.133 Let me just write quantity produced. 0:05:32.133,0:05:34.000 I'll say in the next year 0:05:34.000,0:05:38.447 we're assuming all of this is for the next year 0:05:38.447,0:05:40.600 and it's in thousands of pounds 0:05:40.600,0:05:45.374 so I'll put it in thousands of pounds. 0:05:45.374,0:05:48.833 And so let's see we all the way from 1000 to close to 3000 0:05:48.833,0:05:53.667 so this is 1000 0:05:53.667,0:05:56.600 that's 1 for 1000 that's 2000 and that is 3000 0:05:56.600,0:05:58.911 and the price goes all the way up to 4 0:05:58.911,0:06:03.880 so it's 1 2 3 and then 4 0:06:03.880,0:06:06.202 So we can just plot these points 0:06:06.202,0:06:09.429 these are specific points on the supply curve. 0:06:09.429,0:06:15.606 So at $1 we would supply 1000 pounds 0:06:15.606,0:06:17.287 That's Scenario A. 0:06:17.287,0:06:23.965 At $2 we would supply 2000 pounds. 0:06:23.965,0:06:25.544 That's Scenario B. 0:06:25.544,0:06:29.333 At $3 we would supply 2500 pounds. 0:06:29.333,0:06:32.324 $3....I am sorry.... 0:06:32.324,0:06:35.733 See...notice I get my axes confused 0:06:35.733,0:06:36.933 This is price. 0:06:36.933,0:06:38.965 This isn't what when we talk about it this way 0:06:38.965,0:06:41.420 that we're kind of viewing as the thing that's changing 0:06:41.420,0:06:42.920 although you don't always have to be that way. 0:06:42.920,0:06:50.862 So $1-1000 pounds, $2-2000 pounds, 0:06:50.862,0:06:57.030 $3--not this, this isn't $3--this is $3--$3-2500 pounds. 0:06:57.030,0:06:59.306 So I'll write about that. 0:06:59.306,0:07:01.067 That's about 2500. 0:07:01.067,0:07:02.733 I want to do it in that blue color 0:07:02.733,0:07:04.867 so we don't get confused 0:07:04.867,0:07:08.077 So $3-2500 pounds. 0:07:08.077,0:07:09.708 That's about right. 0:07:09.708,0:07:11.380 So this is Scenario C. 0:07:11.380,0:07:14.008 And then Scenario D at $4 0:07:14.008,0:07:16.280 Actually let me be a little bit clearer with that 0:07:16.280,0:07:17.905 because we're getting a little close 0:07:17.905,0:07:22.247 This is 2500 pounds gets us right over here. 0:07:22.247,0:07:24.067 This is Scenario C. 0:07:24.067,0:07:29.099 And then Scenario D at $4-2750 0:07:29.099,0:07:31.878 So 2750 is like right over there 0:07:31.878,0:07:33.416 So that is $4. 0:07:33.416,0:07:35.333 That is Scenario D. 0:07:35.333,0:07:36.644 And if we connect them, 0:07:36.644,0:07:41.200 they should all be on our supply curve. 0:07:41.200,0:07:45.699 So they will all be... 0:07:45.699,0:07:47.733 it would look something like that. 0:07:47.733,0:07:50.549 And there's some minimum price 0:07:50.549,0:07:52.667 we would need to supply some grapes at all. 0:07:52.667,0:07:53.752 We wouldn't give them away for free 0:07:53.752,0:07:57.055 so maybe that minimum price is like over here. 0:07:57.055,0:07:59.097 that just to even get started producing grapes 0:07:59.097,0:08:00.839 So this right over here is 0:08:00.839,0:08:03.091 what our supply curve would look like. 0:08:03.091,0:08:05.297 Now remember the only thing we're varying here 0:08:05.297,0:08:06.504 is the price. 0:08:06.504,0:08:09.131 So if the price were to change all else equal 0:08:09.131,0:08:12.124 we would move along this curve here. 0:08:12.124,0:08:13.378 Now in the next few videos 0:08:13.378,0:08:14.900 I'll talk about all of those other things 0:08:14.900,0:08:16.350 we've been holding equal 0:08:16.350,0:08:17.720 and what they would do, 0:08:17.720,0:08:20.413 at any given price point, to this curve, 0:08:20.413,0:08:23.459 or in general what they would do to the curve.