Example: Supply and Demand
Summary
TLDRThis video script delves into the foundational economic concepts of supply and demand, illustrating their dynamics through the example of t-shirt sales at a concert. It explains how quantity supplied increases with price, while quantity demanded decreases, converging at an equilibrium point where both quantities match. The script guides viewers through graphing supply and demand functions, calculating equilibrium price and quantity, and identifying scenarios where demand exceeds supply, highlighting the practical implications of economic theory.
Takeaways
- 📈 The video explains the basic economic concepts of supply and demand and their application to an application problem.
- 🔢 Terminology is introduced: 'quantity supplied' is the amount a company is willing to sell at a given price, and 'quantity demanded' is what consumers are willing to buy at that price.
- 💰 As price increases, quantity supplied typically increases because companies can offset production costs with higher profits.
- 🛍️ Conversely, as price increases, quantity demanded decreases because consumers are less willing to purchase at higher prices.
- ⚖️ The equilibrium price is where the quantity supplied equals the quantity demanded, which is a natural market tendency.
- 📊 The video provides formulas for the supply and demand of t-shirts at a concert and demonstrates how to graph these functions.
- 📍 The supply function has a negative y-intercept and a positive slope, indicating that as price increases, the quantity supplied also increases.
- 📉 The demand function has a positive y-intercept and a negative slope, showing that as price increases, the quantity demanded decreases.
- 🔍 The equilibrium point is identified by the intersection of the supply and demand curves on the graph.
- 🧮 To find the equilibrium price and quantity, the supply and demand expressions are set equal to each other and solved algebraically, resulting in a price of $16 and a quantity of 600 t-shirts.
- 🤔 The video also explores scenarios where the quantity demanded is higher than the quantity supplied, which occurs when the price is between $0 and the equilibrium price of $16.
- 🏪 This situation leads to potential shortages, as suppliers are less willing to produce at lower prices, while consumers are eager to buy more at these lower prices.
Q & A
What is the basic concept of supply and demand discussed in the video?
-The video explains the concept of supply and demand as economic principles where the quantity supplied of a good or service is the amount a company is willing to sell at a given price, and the quantity demanded is the amount consumers are willing to buy at that price. These two quantities interact to reach an equilibrium price where supply equals demand.
How does the price affect the quantity supplied according to the video?
-The video states that as the price increases, the quantity supplied also increases because companies are more willing to produce more goods to make more profit, offsetting the production costs.
What is the relationship between price and quantity demanded as explained in the video?
-The video explains that there is an inverse relationship between price and quantity demanded; as the price increases, the quantity demanded decreases because consumers are less willing to purchase the product at a higher price.
What is the equilibrium price in the context of the video?
-The equilibrium price is the price at which the quantity supplied equals the quantity demanded. It is the point where the supply and demand curves intersect, indicating a balance in the market.
How does the video illustrate the supply and demand curves graphically?
-The video uses a graph with the price on the x-axis and quantity on the y-axis. It plots the supply curve with a positive slope starting from a negative y-intercept and the demand curve with a negative slope starting from a higher y-intercept. The intersection of these two curves represents the equilibrium point.
What are the formulas given in the video for quantity supplied and quantity demanded of t-shirts at a concert?
-The video provides the supply function as -200 + 50P and the demand function as 1000 - 25P, where P represents the price.
How does the video calculate the equilibrium price for t-shirts?
-The video sets the supply and demand functions equal to each other (-200 + 50P = 1000 - 25P) and solves for P, resulting in P = 16 dollars as the equilibrium price.
What is the equilibrium quantity of t-shirts according to the video?
-The equilibrium quantity is found by plugging the equilibrium price ($16) into either the supply or demand function, resulting in 600 t-shirts as the equilibrium quantity.
When is the quantity demanded higher than the quantity supplied according to the video?
-The quantity demanded is higher than the quantity supplied when the price is greater than or equal to 0 but less than the equilibrium price of 16 dollars.
What does it imply when the quantity demanded is higher than the quantity supplied?
-When the quantity demanded exceeds the quantity supplied, it implies that consumers want more of the product than what is available, and the supplier is less willing to produce at that price, potentially leading to a shortage and unsatisfied customers.
How does the video suggest that the concepts of supply and demand can be applied to real-world scenarios?
-The video applies the concepts of supply and demand to the scenario of selling t-shirts at a concert, demonstrating how these principles can be used to predict market behavior and establish prices that balance supply and demand.
Outlines
📈 Introduction to Supply and Demand Concepts
This paragraph introduces the fundamental economic concepts of supply and demand, explaining the terminology and their relationship. It describes the quantity supplied as the amount a company is willing to sell at a given price, which increases with the price due to higher potential profits. Conversely, the quantity demanded is the amount consumers are willing to buy, which decreases as the price rises. The equilibrium price is where supply equals demand, a point towards which markets naturally gravitate. The paragraph sets up an application problem involving the supply and demand for t-shirts at a concert, with formulas provided for both functions.
📊 Graphing Supply and Demand Functions
The paragraph delves into the process of graphing the supply and demand functions for t-shirts, with the aim of visualizing the equilibrium point. It explains how to plot the supply function, which has a positive slope due to the relationship between price and quantity supplied, and the demand function, which has a negative slope reflecting the inverse relationship between price and quantity demanded. The equilibrium is identified as the intersection of these two lines. The paragraph also discusses the process of finding the equilibrium price and quantity by setting the supply and demand expressions equal to each other and solving for the price variable. It concludes with the equilibrium price of $16 and the equilibrium quantity of 600 t-shirts.
💡 Analyzing Price and Quantity Dynamics
This paragraph explores the scenario where the quantity demanded exceeds the quantity supplied, using the graphed supply and demand curves as a reference. It identifies the range of prices for which demand outstrips supply, which is when the price is greater than or equal to zero but less than the equilibrium price of $16. The paragraph explains the implications of a price lower than the equilibrium, suggesting that consumers' desire for t-shirts would exceed the supply, potentially leading to stockouts and disappointed customers. It wraps up with a narrative on how supply and demand interact to reach equilibrium, emphasizing the economic dynamics at play.
Mindmap
Keywords
💡Supply
💡Demand
💡Equilibrium Price
💡Equilibrium Quantity
💡Quantity Supplied
💡Quantity Demanded
💡Graphing
💡Y-Intercept
💡Slope
💡Market Equilibrium
💡Price and Quantity Relationship
Highlights
Introduction to the concepts of supply and demand.
Explanation of terminology: quantity supplied and its relation to price.
Explanation of terminology: quantity demanded and its inverse relation to price.
The concept of equilibrium price where supply equals demand.
Markets naturally gravitating towards equilibrium in economics.
Application problem involving supply and demand for t-shirts at a concert.
Graphing the supply function with a negative 200 y-intercept and a positive 50 slope.
Graphing the demand function with a 1000 y-intercept and a negative 25 slope.
Visual representation of supply and demand curves on a graph.
Finding the equilibrium point where supply and demand curves intersect.
Solving for the equilibrium price by setting supply and demand expressions equal.
Calculation of the equilibrium price being $16.
Determining the equilibrium quantity by plugging the equilibrium price into supply or demand functions.
Result of 600 t-shirts being the equilibrium quantity supplied and demanded.
Analysis of when the quantity demanded is higher than the quantity supplied.
Graphical interpretation of price points where demand exceeds supply.
Implications of a price lower than the equilibrium leading to shortages.
The impact of supply and demand on vendor stock and customer satisfaction.
Transcripts
in this video we'll learn about the
concepts of supply and demand and apply
them to an application problem so first
we need to think about some terminology
if we're thinking about a good or
service something that's going to be
bought or sold
the quantity supplied of that good is
the amount of the product of the company
is willing to make available for sale at
a given price and the higher that price
is the higher the quantity is that's
supplied if think about it this way if
the price is higher the company is more
willing to produce more of that good
because they will make more money to
offset the cost of producing that good
now on the flip side the quantity
demanded of that good is the amount of a
product that consumers are willing to
purchase at a given price so if you
think about it this way the higher the
price is the smaller the quantity demand
will be the higher the price the less
willing consumers will be to purchase it
at that price so we've got these two
ideas that are working against each
other
and the equilibrium price of a product
is the price at which the quantity
supplied equals the quantity demanded
and economics predicts that the markets
will naturally gravitate towards this
equilibrium so let's suppose the
quantity supplied and quantity demanded
of t-shirts at a concert are given by
these two formulas first let's graph
these functions just to get an idea of
what this looks like so here's my x-axis
on my y-axis in this case my x-axis is
price and my y-axis is quantity now
we're going to graph the quantity
supplied and the quantity demanded on
the same graph so we'll just call that
quantity okay so let's start with our
supply function our supply function is
negative 200 plus 50 P so let's start
with a negative 200 remember that that's
our y-intercept so that means that this
supply function crosses the y axis down
here at negative 200 so at the point 0
comma negative 200 that's one point that
I know for sure is on the graph of my
supply function I also can tell because
of the 50 P term that the slope of my
supply graph is positive in fact
positive 50 but since we don't have a
scale on our axes
is going to draw a general positively
sloped line if we had a grid or tick
marks or a scale here then we could plot
a couple more points and get a more
accurate graph of our function but
that's a pretty good rough graph of what
our supply curve looks like so that's s
our supply graph what about our demand
graph well we can tell from the 1,000
here that our y-intercept for the demand
graph is 1,000 which is going to be a
lot higher up than 200 was down on the
y-axis so this is the point 0 comma 1000
on our demand graph and the minus 25 P
tells us that the slope of this demand
graph is negative 25 so it's a
negatively sloped line but it's not as
steep as our supply graph because the
supply graph had a slope of 50 and our
slope is only negative 25 so when we
graph this we want to graph this less
steep than our supply graph and when we
do that we get a picture looks something
like this and there's our demand graph D
and what we can tell is that the
equilibrium point which is where these
two lines cross is going to be right
around here again we don't have a scale
so we can't believe estimate where that
is but we can see in our picture that
that's the idea so that's our
equilibrium ok now we're actually asked
to find the equilibrium price in
equilibrium quantity so remember that
equilibrium price is where the supply
and demand are equal so all we're going
to do is set those two expressions equal
to each other and solve for P so we get
negative 200 plus 50 P equals 1000 minus
25 P so to solve for P we're going to
get the P's together on one side I'm
going to add 25 P to both sides and
we're also going to add 200 to both
sides
to get the constants together so 25 P
and minus 25 P cancel negative 200 and
positive 200 cancel and we end up with
75 P equals 1200 finally we divide both
sides by 75 on the left hand side the 75
to divide out and I get P equals 16 and
since this is a price of course that's
going to be 16 dollars would be the
equilibrium price for our t-shirts what
about the equilibrium quantity
well the S of P curve gives us the
quantity supplied and the D of P curve
gives us the quantity demanded but at
this equilibrium those two are the same
value so we can in fact plug this 16
back into either one of those
expressions and we should get the same
answer so the equilibrium quantity is s
of 16 what we get from plugging 16 into
our s function but it's also D of 16 I'm
just using s because its first so we get
negative 200 plus 50 times our
equilibrium price which is 16 and that
works out to be 600 so what this tells
us is that at the equilibrium the price
of the t-shirts will be 600 there will
be 600 t-shirts supplied and 600
t-shirts demand finally we're asked to
determine the prices for which the
quantity demanded is higher than the
quantity supplied so if we go back to
our graph remember that when we graph
these functions we got a picture looked
a little something like this
so this function was our demand curve
and this function was our supply curve
and then in the middle
this was our equilibrium point and in
fact we now know the coordinates of that
point we know the coordinates of that
point are 16 comma 600 so the question
is asking us when is the quantity
demanded higher than the quantity
supplied well in our picture here demand
is the Green Line and supply as the blue
line so we're being asked for which
values of the price variable is the
Green Line higher than the blue line
what we can tell is that it's for these
prices here that's where the green list
is higher than the blue now it doesn't
make sense to have negative price so
that means that what we're looking at is
the price is going to be bigger than or
equal to 0 but less than 16 we don't
want to have less than or equal to 16
because if the price equals 16 then the
demand is equal to the supply it's not
higher than the supply so this is the
valley that we're talking about and
let's think about what that would mean
so our price of our t-shirt is lower
than the equilibrium price that means
that the consumers want more of those
t-shirts because they're not as
expensive but the supplier the company
producing the t-shirts is less willing
to produce that many t-shirts because
they're not making as much money off of
them so that means that the vendor
selling the t-shirt is probably going to
run out of t-shirts and we'll have some
unhappy customers who wish they could
have bought some t-shirts so again we
can kind of tell the story of how the
demand and the supply work together and
talk about this equilibrium idea
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