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We've talked a lot about demand

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So now let's talk about supply!

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And we'll use grapes for this example

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We'll pretend to be grape farmers of some sort

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So I'll start by introducing you

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(and maybe I'll do it in purple in honor of the grapes)

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to the law of supply which, like the law of demand,

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makes a lot of intuitive sense

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If we hold all else equal

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and in the next few videos

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we'll talk about what happens

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when we change some of those things

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that we'll hold equal right now

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but if you hold all else equal

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and the only thing that you're doing

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is you're changing price

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then the law of supply says

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that if the price goes up

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I'll just say p for price

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if the price goes up then the supply

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and let me be careful

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the quantity supplied goes up

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And then you can imagine

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if the price goes down

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the quantity supplied goes down

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And you might already notice that

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that I was careful to say quantity supplied

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And it's just like we saw with demand

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When we talk about demand going up or down

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we're talking about the entire price/quantity relationship shifting

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When we're talking about a particular quantity demanded

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we say quantity demanded

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we don't just say demand

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This is the exact same thing for supply

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When we're talking about a particular quantity

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we'll be careful to say quantity

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If we talk about supply increasing

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we're talking about the entire relationship shifting

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either up or down

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So let's just make sure this makes intuitive sense for us

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and I think it probably does.

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Let's think about ourselves as grape farmers

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and I'll make a little supply schedule right over here

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Supply...

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so grape supply schedule which is really just a table

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showing the relationship between, all else equal,

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the price and the quantity supplied

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So let's label some scenarios over here

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just like we did with the demand schedule

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Scenarios... and let's put our price over here

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and this'll be in price/lb the per pound price of grapes

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and this is the quantity produced over the time period

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and whenever we do any of these

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supply or demand schedules

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we're talking over a particular time period

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It could be per day.

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It could be per month.

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It could be per year.

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but that's the only way to make some sense of

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OK, what is the quantity per day going to be produced,

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if that's the price?

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We didn't say per day...

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We don't know what we're talking about.

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Quantity supplied...

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And so let's just say Scenario A

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If the price per pound of grapes is 50 cents

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if it's 50 cents per pound

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actually let me just do round numbers

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but you get the idea

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The price per pound is $1.

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Let's just say for us

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we consider that to be a relatively low price .

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And so we'll only kind of do the easiest land

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our most fertile land where it's easy to produce grapes

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and maybe the fertile and cheap land

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so no-one else wants to use the land for other things

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it's only good for growing grapes

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And so we will provide,

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--so this is price per pound--

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In that situation we can produce 1000 lbs in this year.

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And I've never been a grape farmer,

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so I actually don't know

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if that's a reasonable amount or not

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but I'll just go with it, 1000 lbs.

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Now, let's take Scenario B

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Let's say the price goes up to $2

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Well now not only would we produce

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what we were producing before,

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but we might now wanna buy some more land

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land that might have had other uses

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land that's maybe not as productive for grapes

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but we would because now we can get more for grapes

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and so maybe now we're willing to produce 2000 lbs.

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And we could keep going

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the same dynamics keep happening

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so let's say if the price were $3 per pound

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now we do want to produce more,

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maybe now we're even willing to work a little harder,

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or plant things closer to each other,

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or maybe I'll get even more land involved than

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I would've otherwise used for other crops

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and so then I'm gonna produce 2500 pounds

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And I'll do one more scenario.

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Let's say Scenario D.

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the price goes to $4 a pound

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Same dynamic, I'll stop planting other crops.

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And use them now for grapes

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because grape prices are so high

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and so I will produce 2750 pounds

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And so we can draw a supply curve

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just as we have drawn demand curves

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and it's the same exact convention

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which I'm not a fan of putting price on the vertical axis

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because as you see,

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we tend to talk about price as an independent variable.

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we don't always talk about it that way

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and in most of math and science

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you put the independent variable on the horizontal axis

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but the convention in economics is

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to put it on the vertical axis.

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So price on the vertical axis

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and so this is really price per pound

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And then on the horizontal axis quantity, produced.

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Let me just write quantity produced.

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I'll say in the next year

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we're assuming all of this is for the next year

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and it's in thousands of pounds

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so I'll put it in thousands of pounds.

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And so let's see we all the way from 1000 to close to 3000

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so this is 1000

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that's 1 for 1000 that's 2000 and that is 3000

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and the price goes all the way up to 4

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so it's 1 2 3 and then 4

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So we can just plot these points

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these are specific points on the supply curve.

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So at $1 we would supply 1000 pounds

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That's Scenario A.

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At $2 we would supply 2000 pounds.

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That's Scenario B.

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At $3 we would supply 2500 pounds.

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$3....I am sorry....

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See...notice I get my axes confused

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This is price.

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This isn't what when we talk about it this way

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that we're kind of viewing as the thing that's changing

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although you don't always have to be that way.

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So $1-1000 pounds, $2-2000 pounds,

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$3--not this, this isn't $3--this is $3--$3-2500 pounds.

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So I'll write about that.

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That's about 2500.

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I want to do it in that blue color

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so we don't get confused

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So $3-2500 pounds.

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That's about right.

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So this is Scenario C.

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And then Scenario D at $4

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Actually let me be a little bit clearer with that

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because we're getting a little close

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This is 2500 pounds gets us right over here.

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This is Scenario C.

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And then Scenario D at $4-2750

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So 2750 is like right over there

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So that is $4.

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That is Scenario D.

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And if we connect them,

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they should all be on our supply curve.

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So they will all be...

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it would look something like that.

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And there's some minimum price

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we would need to supply some grapes at all.

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We wouldn't give them away for free

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so maybe that minimum price is like over here.

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that just to even get started producing grapes

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So this right over here is

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what our supply curve would look like.

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Now remember the only thing we're varying here

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is the price.

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So if the price were to change all else equal

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we would move along this curve here.

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Now in the next few videos

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I'll talk about all of those other things

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we've been holding equal

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and what they would do,

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at any given price point, to this curve,

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or in general what they would do to the curve.