We've talked a lot about demand
So now let's talk about supply!
And we'll use grapes for this example
We'll pretend to be grape farmers of some sort
So I'll start by introducing you
(and maybe I'll do it in purple in honor of the grapes)
to the law of supply which, like the law of demand,
makes a lot of intuitive sense
If we hold all else equal
and in the next few videos
we'll talk about what happens
when we change some of those things
that we'll hold equal right now
but if you hold all else equal
and the only thing that you're doing
is you're changing price
then the law of supply says
that if the price goes up
I'll just say p for price
if the price goes up then the supply
and let me be careful
the quantity supplied goes up
And then you can imagine
if the price goes down
the quantity supplied goes down
And you might already notice that
that I was careful to say quantity supplied
And it's just like we saw with demand
When we talk about demand going up or down
we're talking about the entire price/quantity relationship shifting
When we're talking about a particular quantity demanded
we say quantity demanded
we don't just say demand
This is the exact same thing for supply
When we're talking about a particular quantity
we'll be careful to say quantity
If we talk about supply increasing
we're talking about the entire relationship shifting
either up or down
So let's just make sure this makes intuitive sense for us
and I think it probably does.
Let's think about ourselves as grape farmers
and I'll make a little supply schedule right over here
Supply...
so grape supply schedule which is really just a table
showing the relationship between, all else equal,
the price and the quantity supplied
So let's label some scenarios over here
just like we did with the demand schedule
Scenarios... and let's put our price over here
and this'll be in price/lb the per pound price of grapes
and this is the quantity produced over the time period
and whenever we do any of these
supply or demand schedules
we're talking over a particular time period
It could be per day.
It could be per month.
It could be per year.
but that's the only way to make some sense of
OK, what is the quantity per day going to be produced,
if that's the price?
We didn't say per day...
We don't know what we're talking about.
Quantity supplied...
And so let's just say Scenario A
If the price per pound of grapes is 50 cents
if it's 50 cents per pound
actually let me just do round numbers
but you get the idea
The price per pound is $1.
Let's just say for us
we consider that to be a relatively low price .
And so we'll only kind of do the easiest land
our most fertile land where it's easy to produce grapes
and maybe the fertile and cheap land
so no-one else wants to use the land for other things
it's only good for growing grapes
And so we will provide,
--so this is price per pound--
In that situation we can produce 1000 lbs in this year.
And I've never been a grape farmer,
so I actually don't know
if that's a reasonable amount or not
but I'll just go with it, 1000 lbs.
Now, let's take Scenario B
Let's say the price goes up to $2
Well now not only would we produce
what we were producing before,
but we might now wanna buy some more land
land that might have had other uses
land that's maybe not as productive for grapes
but we would because now we can get more for grapes
and so maybe now we're willing to produce 2000 lbs.
And we could keep going
the same dynamics keep happening
so let's say if the price were $3 per pound
now we do want to produce more,
maybe now we're even willing to work a little harder,
or plant things closer to each other,
or maybe I'll get even more land involved than
I would've otherwise used for other crops
and so then I'm gonna produce 2500 pounds
And I'll do one more scenario.
Let's say Scenario D.
the price goes to $4 a pound
Same dynamic, I'll stop planting other crops.
And use them now for grapes
because grape prices are so high
and so I will produce 2750 pounds
And so we can draw a supply curve
just as we have drawn demand curves
and it's the same exact convention
which I'm not a fan of putting price on the vertical axis
because as you see,
we tend to talk about price as an independent variable.
we don't always talk about it that way
and in most of math and science
you put the independent variable on the horizontal axis
but the convention in economics is
to put it on the vertical axis.
So price on the vertical axis
and so this is really price per pound
And then on the horizontal axis quantity, produced.
Let me just write quantity produced.
I'll say in the next year
we're assuming all of this is for the next year
and it's in thousands of pounds
so I'll put it in thousands of pounds.
And so let's see we all the way from 1000 to close to 3000
so this is 1000
that's 1 for 1000 that's 2000 and that is 3000
and the price goes all the way up to 4
so it's 1 2 3 and then 4
So we can just plot these points
these are specific points on the supply curve.
So at $1 we would supply 1000 pounds
That's Scenario A.
At $2 we would supply 2000 pounds.
That's Scenario B.
At $3 we would supply 2500 pounds.
$3....I am sorry....
See...notice I get my axes confused
This is price.
This isn't what when we talk about it this way
that we're kind of viewing as the thing that's changing
although you don't always have to be that way.
So $1-1000 pounds, $2-2000 pounds,
$3--not this, this isn't $3--this is $3--$3-2500 pounds.
So I'll write about that.
That's about 2500.
I want to do it in that blue color
so we don't get confused
So $3-2500 pounds.
That's about right.
So this is Scenario C.
And then Scenario D at $4
Actually let me be a little bit clearer with that
because we're getting a little close
This is 2500 pounds gets us right over here.
This is Scenario C.
And then Scenario D at $4-2750
So 2750 is like right over there
So that is $4.
That is Scenario D.
And if we connect them,
they should all be on our supply curve.
So they will all be...
it would look something like that.
And there's some minimum price
we would need to supply some grapes at all.
We wouldn't give them away for free
so maybe that minimum price is like over here.
that just to even get started producing grapes
So this right over here is
what our supply curve would look like.
Now remember the only thing we're varying here
is the price.
So if the price were to change all else equal
we would move along this curve here.
Now in the next few videos
I'll talk about all of those other things
we've been holding equal
and what they would do,
at any given price point, to this curve,
or in general what they would do to the curve.