Supply and Demand Terminology

Summary

This video script clarifies the distinction between changes in demand versus quantity demanded, and changes in supply versus quantity supplied in economic terms. It explains that a change in demand or supply shifts the entire curve due to factors like income or technology, while a change in quantity demanded or supplied is a movement along the curve due to price changes. The script uses graphical models to illustrate these concepts, emphasizing the importance of understanding the terminology to avoid confusion.

Takeaways

• 😅 Economists use the terms 'change in demand' and 'change in quantity demanded' differently, which can be confusing.
• 📈 A 'change in demand' refers to a shift in the entire demand curve, caused by factors like income, population, or prices of related goods.
• 🛒 'Change in quantity demanded' is a movement along the same demand curve due to a change in the good's own price.
• 📊 Demonstrating an increase in demand graphically shifts the demand curve to the right or up, leading to higher prices and quantities exchanged.
• 📉 When supply increases, it results in an increase in the quantity demanded, shown as a movement along the demand curve from QE1 to QE2.
• 🔄 The difference between 'change in supply' and 'change in quantity supplied' is similar to that between demand changes and quantity demanded changes.
• 🔧 A 'change in supply' is a shift of the entire supply curve, triggered by factors like changes in technology or input prices.
• 🔄 'Change in quantity supplied' is a movement along the supply curve due to a change in price, not a shift of the supply curve itself.
• 📉 Graphically, an increase in supply shifts the supply curve to the right and down, leading to lower prices and increased quantities traded.
• 🔑 Understanding these concepts and following the curves helps to avoid confusion regarding economic terminology.

Q & A

What is the difference between a change in demand and a change in the quantity demanded?

A change in demand refers to a shift in the entire demand curve, which can be caused by factors such as income, population, or changes in the prices of substitutes and compliments. A change in the quantity demanded refers to a movement along a fixed demand curve, which is caused by a change in the price of the good itself.

What causes a shift in the demand curve?

A shift in the demand curve is caused by changes in factors known as 'shifters,' which include income, population, prices of related goods (substitutes and compliments), and other external factors that affect the overall desire for a product.

How does an increase in demand affect the market price and quantity?

An increase in demand shifts the demand curve to the right or up, leading to a higher market price and an increase in the quantity exchanged.

What is the difference between a change in supply and a change in the quantity supplied?

A change in supply refers to a shift in the entire supply curve, which can be caused by changes in costs such as technology or input prices. A change in the quantity supplied refers to a movement along a fixed supply curve, which is caused by a change in the price of the good.

What causes a shift in the supply curve?

A shift in the supply curve is caused by changes in the underlying costs of production, such as improvements in technology, changes in input prices, or other factors that affect the cost of producing a good.

How does an increase in supply affect the market price and quantity?

An increase in supply shifts the supply curve to the right, resulting in a lower market price and an increase in the quantity bought and sold.

What is the relationship between a change in demand and a change in the quantity supplied?

A change in demand can lead to a change in the quantity supplied, but not a change in the supply itself. For example, an increase in demand will increase the quantity supplied along a fixed supply curve without shifting the supply curve.

Can you provide an example of a shifter that would cause an increase in demand?

An example of a shifter that could cause an increase in demand is an increase in income, especially for normal goods, where consumers can afford to buy more as their income rises.

What is the impact of a decrease in the price of a substitute good on the demand for a product?

A decrease in the price of a substitute good typically leads to a decrease in demand for the original product, as consumers switch to the cheaper substitute.

How does an increase in the price of a complement good affect the demand for a related product?

An increase in the price of a complement good typically decreases the demand for the related product, as consumers buy less of the complement, which in turn reduces the need for the related product.

What is the economic term for the point where the supply and demand curves intersect?

The point where the supply and demand curves intersect is called the equilibrium, which represents the market-clearing price and quantity where the quantity supplied equals the quantity demanded.

Outlines

00:00

📈 Understanding Changes in Demand vs. Quantity Demanded

This paragraph clarifies the distinction between a change in demand and a change in the quantity demanded. A change in demand is depicted as a shift in the entire demand curve, which can be caused by factors such as income, population, or changes in the prices of substitutes and compliments. This shift results in a new equilibrium with a higher price and quantity. On the other hand, a change in the quantity demanded is a movement along the same demand curve due to a change in price. The script uses a model to illustrate these concepts, showing an increase in demand that shifts the curve and an increase in supply that increases the quantity demanded without shifting the curve.

Keywords

💡Demand

Demand refers to the quantity of a product that consumers are willing and able to purchase at various prices during a given period. In the video, demand is illustrated as a curve that can shift due to factors like income, population, or prices of related goods. For instance, an increase in demand is shown by the demand curve shifting to the right or up, leading to a higher price and quantity exchanged.

💡Supply

Supply is the quantity of a product that producers are willing and able to offer for sale at various prices during a given period. The video explains that a change in supply can occur due to changes in costs, such as technology or input prices, causing the supply curve to shift. An increase in supply is depicted as the supply curve shifting to the right, resulting in a lower price and a greater quantity bought and sold.

💡Equilibrium

Equilibrium in economics is the state where the quantity demanded of a product equals the quantity supplied, leading to a stable market price. Although not explicitly mentioned in the script, the concept is central to the video's discussion of shifts in demand and supply curves, as these shifts move the market towards a new equilibrium.

💡Shifters

Shifters are factors that cause a change in demand or supply other than the product's own price. The video mentions shifters such as income, population, and prices of substitutes or complements as reasons for a shift in the demand curve. For example, an increase in income might shift the demand curve to the right, indicating higher demand at each price level.

💡Quantity Demanded

Quantity demanded is the amount of a product that consumers are willing and able to purchase at a specific price. The video distinguishes between a change in demand and a change in the quantity demanded, with the latter referring to a movement along a fixed demand curve due to a change in price. An example given is an increase in supply leading to an increase in the quantity demanded from QE1 to QE2.

💡Quantity Supplied

Quantity supplied is the amount of a product that producers are willing and able to sell at a specific price. The video explains that a change in the quantity supplied occurs along a fixed supply curve due to a change in price, as opposed to a change in supply, which involves a shift in the entire supply curve.

💡Price

Price is the amount of money charged for a product. In the video, price changes are shown to cause movements along the demand and supply curves. For example, an increase in the price of a product would typically lead to a decrease in the quantity demanded, represented as a movement up along the demand curve.

💡Substitutes

Substitutes are products that can be used in place of one another. The video mentions that changes in the prices of substitutes can affect demand. If the price of a substitute good decreases, consumers might switch to that product, leading to a decrease in demand for the original product.

💡Complements

Complements are products that are used together. The video implies that changes in the prices of complements can also affect demand. If the price of a complementary good increases, consumers might buy less of it and consequently less of the product it complements.

💡Income

Income refers to the money received by individuals or households. The video states that changes in income can shift the demand curve. An increase in income might lead to an increase in demand for normal goods, as consumers can afford to buy more.

💡Elasticity

Elasticity is a measure of how sensitive the quantity demanded or supplied of a product is to a change in price. The video ends with a mention of elasticity, suggesting it as a topic for further discussion. Elasticity is crucial in understanding how changes in price affect the market and is often illustrated by the steepness of the demand and supply curves.

Highlights

Introduction to the difference between a change in demand and a change in the quantity demanded.

A change in demand is a shift in the demand curve caused by factors other than price.

Shifters that cause a change in demand include income, population, and prices of substitutes or compliments.

A change in the quantity demanded is a movement along a fixed demand curve due to a change in price.

Illustration of an increase in demand shifting the entire demand curve to the right or up.

Result of increased demand: higher price and quantity exchanged.

Example of a change in the quantity demanded due to an increase in supply.

Increased supply leads to an increase in the quantity demanded from QE1 to QE2.

Differentiation between a change in supply and a change in the quantity supplied.

A change in supply is a shift in the entire supply curve caused by changes in costs or technology.

A change in the quantity supplied is a movement along a fixed supply curve due to a price change.

Illustration of an increase in supply shifting the entire supply curve to the right and down.

Result of increased supply: lower price and greater quantity bought and sold.

Example of a change in the quantity supplied due to an increase in demand.

Increased demand leads to an increase in the quantity supplied from QE1 to QE2 without shifting the supply curve.

Emphasis on not getting confused by terminology by closely following the curves.

Transition to the topic of elasticity in the next part of the series.

Transcripts

♪ [music] ♪

- [Alex] We're almost finished covering demand, supply,

and equilibrium.

We just need to wrap up one loose end.

Unfortunately, economists use similar terms for two things

which are quite different.

A change in demand versus a change in the quantity demanded.

We're sorry about the confusing terminology

but, alas, that's the way it is.

Fortunately, you're already familiar with these differences,

we just need to point them out.

Let's get going.

A change in demand refers to a shift in the demand curve.

As we know, a change in demand, a shift in the demand curve,

is caused by one of the shifters -- income, population,

changes in the prices of substitutes, and compliments

and so forth.

A change in quantity demanded refers to a movement

along a fixed demand curve.

And that's caused by a change in price.

Let's illustrate with the model.

Begin on the left with a change in demand,

in this case, an increase in demand.

The increase in demand shifts the entire demand curve

to the right or up and leads, as we know, to a higher price

and quantity exchanged.

No problem.

Now, let's look at a change in the quantity demanded

on the right.

Suppose, for example, that the supply increases.

Now, notice that an increased supply increases the quantity

demanded from QE1 to QE2.

That's an increase in the quantity demanded.

In the first case on the left, we have an increase in demand,

the entire demand curve shifts out.

In the second case on the right, we have an increase

in the quantity demanded.

That is a movement along a fixed demand curve

caused by a shift, in this case, in the supply curve.

Well, if you guess that the next thing

that we're going to do is to show the difference

between a change in supply and a change

in the quantity supplied, you'd be right.

Let's do that now.

A change in supply refers to a shift

in the entire supply curve caused, as we know,

by a change in costs such as a change in technology

or input prices and so forth.

A change in the quantity supplied refers to a movement

along a fixed supply curve caused by a change in the price.

Okay, let's go to the model.

On the left we begin with a change in supply,

in this case, an increase in supply that shifts

the entire supply curve down into the right,

thereby, generating a lower price and greater quantity

bought and sold.

Now, on the right, suppose that the demand increases.

Notice that the increase in demand increases

the quantity supplied from QE1 to QE2

along a fixed supply curve.

The supply hasn't changed, the supply curve hasn't moved,

so the supply is the same but the quantity supplied

has increased.

Again, on the left, we have a change in supply,

the entire supply curve shifts.

On the right, we have a change in the quantity supplied

a movement along a fixed supply curve caused,

in this case, by an increase in demand.

That's it. The terminology is a little bit tricky

but if you follow the curves closely,

you won't get confused.

Next up, elasticity.

- [Narrator] If you want to test yourself

click "Practice Questions."

Or if you're ready to move on, just click "Next Video."

♪ [music] ♪