Example: Supply and Demand

Summary

This 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

00:00

📈 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.

05:02

📊 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.

Keywords

💡Supply

Supply refers to the amount of a product that producers are willing to offer for sale at a given price. In the video, the concept of supply is introduced with the example of a company being more willing to produce more goods when the price is higher, as it helps offset production costs. The supply function is represented by the formula -200 + 50P, illustrating a positive relationship between price and quantity supplied.

💡Demand

Demand is the quantity of a product that consumers are willing to purchase at a given price. The video explains that as price increases, the quantity demanded decreases, with consumers being less willing to buy at higher prices. The demand function is given as 1000 - 25P, showing a negative relationship between price and quantity demanded.

💡Equilibrium Price

Equilibrium price is the price at which the quantity supplied equals the quantity demanded, representing a balance in the market. The video demonstrates this by setting the supply and demand equations equal to each other and solving for the price, which in the example is found to be $16.

💡Equilibrium Quantity

Equilibrium quantity is the amount of a product that is both supplied and demanded at the equilibrium price. The video explains that at the equilibrium price of $16, there will be 600 t-shirts supplied and demanded, indicating market balance.

💡Quantity Supplied

Quantity supplied is the amount of a product that companies are willing to make available for sale at a given price. In the video, the concept is used to explain the relationship between price and production, with the example that at a higher price, more t-shirts are supplied.

💡Quantity Demanded

Quantity demanded is the amount of a product that consumers are willing to purchase at a given price. The video uses this concept to discuss how consumer willingness to buy changes with price, with less t-shirts being demanded at higher prices.

💡Graphing

Graphing is a method used in the video to visually represent the supply and demand functions. The video describes how to plot the supply and demand curves on a graph with price on the x-axis and quantity on the y-axis, helping to illustrate the concept of equilibrium.

💡Y-Intercept

The y-intercept is the point where a graph crosses the y-axis. In the video, the y-intercepts for the supply and demand functions are -200 and 1000, respectively, indicating where each curve begins on the y-axis.

💡Slope

Slope in the context of the video refers to the steepness of the supply and demand curves on the graph. The supply curve has a positive slope of 50, indicating that as price increases, the quantity supplied increases. The demand curve has a negative slope of -25, showing that as price increases, the quantity demanded decreases.

💡Market Equilibrium

Market equilibrium is the state where the market naturally gravitates, as explained in the video, where the supply and demand for a product are equal. The video uses the concept to show how the equilibrium price and quantity are determined for t-shirts at a concert.

💡Price and Quantity Relationship

The relationship between price and quantity is central to the video's theme, illustrating how changes in price affect both the supply from producers and the demand from consumers. The video uses this relationship to explain the dynamics of market equilibrium and how it is reached.

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