EconMovies 4: Indiana Jones (Demand, Supply, Equilibrium, Shifts)

[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]