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