Changes in Market Equilibrium

Summary

This video explores how changes in market factors can shift supply and demand curves, affecting equilibrium price and quantity. It discusses scenarios like disease-resistant apples increasing supply, cancer-preventing apples boosting demand, and pear cider ads potentially reducing apple cider demand. The video illustrates how these shifts can lead to varied outcomes, such as price decreases or increases, and quantity changes, emphasizing the importance of understanding curve movements.

Takeaways

• 🍏 The invention of a disease-resistant apple leads to an increase in supply, shifting the supply curve to the right and resulting in a lower equilibrium price.
• 📈 A study showing that apples prevent cancer increases demand, shifting the demand curve to the right and causing both the equilibrium price and quantity to increase.
• 📉 An advertising campaign for pear cider can decrease the demand for apple cider, shifting the apple cider demand curve to the left and potentially leading to a decrease in both price and quantity.
• 🍐 If apple growers switch to growing pears due to increased demand, the supply of apples may decrease, shifting the apple supply curve to the left.
• 🔄 Both supply and demand for apples can shift to the left if apple growers switch to pears, leading to a decrease in quantity but an uncertain effect on price.
• 📊 The equilibrium price may remain unchanged if the shifts in supply and demand are balanced, but the quantity will definitely decrease.
• 💼 Unionization and wage increases for apple pickers increase production costs, leading to a decrease in supply and an increase in equilibrium price.
• 📉 A decrease in supply, with little change in demand, can lead to a significant increase in equilibrium price while quantity decreases.
• 🤔 The effect of changes in supply and demand on price is not always predictable and requires analysis of the specific market conditions.
• 📚 Understanding how supply and demand curves shift in response to market changes is crucial for predicting changes in equilibrium price and quantity.

Q & A

What is the main focus of the video?

The video focuses on analyzing how changes in market factors can affect supply and demand, and subsequently the equilibrium price and quantity.

What happens to the supply curve when a new disease-resistant apple is invented?

The supply curve shifts to the right, indicating an increase in the quantity of apples supplied at any given price point.

How does the invention of a disease-resistant apple affect the equilibrium price?

The equilibrium price decreases because the increased supply leads to a lower price for the same quantity of apples.

What is the impact of a study showing that apples prevent cancer on the market?

The study increases the demand for apples, shifting the demand curve to the right and resulting in a higher equilibrium price.

How does the pear cider industry's ad campaign affect apple demand?

The ad campaign decreases the demand for apple cider, shifting the apple demand curve to the left and potentially lowering the price of apples.

What could be the dual effect of the pear cider industry's ad campaign on apple supply?

The ad campaign could lead to a decrease in both the demand and supply of apples if apple growers switch to growing pears due to increased demand and prices for pears.

What is the potential outcome for the equilibrium price when both supply and demand for apples decrease?

The equilibrium price could remain the same, increase, or decrease depending on the relative shifts in supply and demand.

How does the unionization of apple pickers and their demand for wage increases affect apple supply?

The unionization and wage increases lead to higher production costs, which reduces the quantity of apples supplied at any given price, potentially increasing the equilibrium price.

What is the common outcome for the equilibrium quantity in all scenarios discussed in the video?

In all scenarios, the equilibrium quantity decreases due to changes in either supply, demand, or both.

Why is it important to consider the actual supply and demand curves when predicting price changes?

Predicting price changes requires an understanding of how the actual curves shift because the outcome depends on the relative magnitudes of supply and demand changes.

What does the video suggest as a method for better understanding supply and demand changes?

The video suggests drawing and analyzing the supply and demand curves to visualize and reason through the effects of market changes on equilibrium.

Outlines

00:00

🍏 Impact of Disease-Resistant Apples on Market Equilibrium

The paragraph discusses how the invention of a disease-resistant apple affects the supply and demand dynamics in the apple market. The introduction of such apples allows growers to produce more, leading to an increase in supply. This is represented by a rightward shift in the supply curve, indicating that at any given price, more apples are supplied. The minimum price required to produce apples decreases, resulting in a lower equilibrium price. The demand remains unchanged, and the video uses this scenario to illustrate the concept of market equilibrium and how changes in supply can affect price and quantity.

05:02

📈 Effects of Apples' Health Benefits on Market Dynamics

This paragraph explores the scenario where a study reveals that apples can prevent cancer, which influences consumer preferences and increases the demand for apples. The demand curve shifts to the right, indicating that at any given price, consumers now demand a higher quantity of apples. The equilibrium price rises due to the increased demand, while the equilibrium quantity also increases as more people are willing to buy apples. The video uses this example to demonstrate how changes in consumer preferences can impact the market for a product.

Keywords

💡Supply and Demand

Supply and demand are fundamental economic concepts that describe the relationship between the quantity of a good or service that producers are willing to supply and the quantity that consumers are willing to purchase at various prices. In the video, the speaker uses the example of apples to illustrate how changes in supply and demand can shift market equilibrium. For instance, the invention of disease-resistant apples increases supply, while a study on apples preventing cancer increases demand.

💡Equilibrium Price

The equilibrium price is the price at which the quantity demanded by consumers equals the quantity supplied by producers. It is the point where the market reaches balance. The video explains how changes in supply or demand can affect the equilibrium price. For example, when disease-resistant apples are introduced, the equilibrium price decreases because the increased supply shifts the supply curve to the right.

💡Equilibrium Quantity

Equilibrium quantity refers to the amount of a product that is bought and sold in the market at the equilibrium price. The video script discusses how the equilibrium quantity changes with shifts in supply or demand. After the introduction of disease-resistant apples, the equilibrium quantity increases because more apples are available at a lower price.

💡Supply Curve

A supply curve graphically represents the relationship between the price of a good and the quantity that producers are willing to supply. In the video, the speaker describes how the supply curve for apples shifts to the right when disease-resistant apples are invented, indicating that suppliers can produce more apples at any given price.

💡Demand Curve

A demand curve shows the quantity of a product that consumers are willing to purchase at various prices. The video uses the example of a study revealing that apples prevent cancer to illustrate how the demand curve shifts to the right, reflecting an increased desire for apples at any given price.

💡Shift in Supply

A shift in supply refers to a change in the quantity supplied of a good at every price level, which is represented by a movement along the supply curve. The video explains that the invention of disease-resistant apples causes a rightward shift in the supply curve, leading to an increase in the quantity of apples supplied.

💡Shift in Demand

A shift in demand occurs when there is a change in consumer preferences or other factors that affect the desire to purchase a product, leading to a change in the quantity demanded at every price level. The video describes how a study on apples preventing cancer causes a rightward shift in the demand curve, increasing the quantity demanded.

💡Price Elasticity of Demand

Price elasticity of demand measures how the quantity demanded of a good responds to changes in its price. While not explicitly mentioned in the script, the concept is implicitly discussed when the speaker talks about how a decrease in price leads to an increase in quantity demanded, as seen with the disease-resistant apples.

💡Substitute Goods

Substitute goods are products that can be used in place of one another, such as pear cider and apple cider. The video script discusses how an advertising campaign for pear cider can decrease the demand for apple cider, as consumers may switch to the substitute good, pear cider, affecting the demand for apples.

💡Complementary Goods

Complementary goods are products that are used together, such as apples and apple cider. The video implies the concept of complementary goods when discussing how a decrease in demand for apple cider could lead to a decrease in demand for apples, as they are used together.

💡Cost of Production

Cost of production refers to the total expense incurred by businesses in producing goods or services. The video mentions how an increase in wages demanded by the apple pickers union would increase the cost of production for apple growers, potentially leading to a decrease in supply if they are less willing to produce at the current price.

Highlights

Introduction to the impact of market factors on supply and demand curves.

Illustration of how a new disease-resistant apple invention increases supply.

Explanation of the rightward shift in the supply curve due to increased production capabilities.

Analysis of how the equilibrium price decreases when supply increases and demand remains constant.

Scenario of a study revealing apples prevent cancer, affecting consumer preferences.

Description of the rightward shift in the demand curve due to increased consumer desire for apples.

Observation that both price and quantity increase when demand rises and supply remains constant.

Discussion on the pear cider industry's ad campaign and its effect on apple cider demand.

Hypothesis that apple growers might shift to growing pears due to increased demand for pear cider.

Prediction of a leftward shift in the apple demand curve due to decreased apple cider demand.

Consideration of a potential decrease in apple supply if growers switch to pears.

Scenario where both supply and demand for apples decrease, leading to an uncertain change in price.

Illustration of different possible outcomes for price and quantity based on the extent of supply and demand shifts.

Example of apple pickers unionizing and demanding wage increases, affecting production costs.

Analysis of how increased production costs lead to a leftward shift in the supply curve and higher equilibrium prices.

Encouragement for viewers to apply these concepts to different markets and situations.

Transcripts

What I want to do in this video is

think about how supply and/or demand might change based

on changes in some factors in the market.

And then think about what that might do to the equilibrium

price and equilibrium quantity.

So let's say at some period, this

is what the supply curve looks like

and this is what the demand curve looks like.

And then all of a sudden, this thing happens.

A new disease-resistant apple is invented.

What's likely to happen for the next period?

Well, a new disease-resistant apple being invented,

this is something that clearly impacts the growers,

clearly impacts the suppliers.

All of a sudden, they'll have fewer apples

succumbing to disease.

And so they will be able to produce more apples.

So at any given price point, this

will shift the quantity supplied up.

So at any given price point, it will

shift the quantity of apples supplied up.

Or you could say that the entire supply

curve is shifted to the right, or supply goes up.

And let me draw the entire curve.

And obviously, if now we have disease-resistant apples,

even our minimum price to start producing apples is lower.

Now, when we had the supply curve shift in this way,

when it shifted to the right, what

happens to the equilibrium price?

Well our old equilibrium price was right over here.

Our new equilibrium price-- so this is the old one.

And this is our new equilibrium price.

We're assuming that demand has not changed at all.

So this is our new equilibrium price.

So our new equilibrium price is lower.

So the price went down.

And you don't have to-- you could have probably reasoned

through that before, taking an econ class.

But this way, at least you have some way to think about it

and think about how the curves are changing.

Now, let's think about this scenario.

So this is before.

So in all of these examples, the graph

is what happened before the news came out,

or the event came out.

So this is before.

And then a study is released on how apples prevent cancer.

So what is that likely to do?

Well, no one wants cancer.

And so more people are going to be eager to have apples.

This will change customer preferences.

They will prefer apples even more

when they're at the supermarket.

So this is clearly affecting demand customer preferences.

And so at a given price, people will

want-- they will demand a higher quantity of apples.

The quantity of apples demanded at a given price will go up.

So the demand curve will shift to the right.

Or you could say, the demand would go up.

So that's the new demand curve.

So here, demand goes up.

And let me write it over here.

In this situation, supply went up.

Here, demand goes up.

And what happens to the price?

Well, this is our old equilibrium price.

This is our new equilibrium price.

The price clearly went up.

So the price went up.

And actually over here, let's think about the quantity too

in this first situation.

This is our old equilibrium quantity.

This is our new equilibrium quantity.

Quantity went up, which makes sense.

You have fewer apples dying, price went down,

more people want to buy them.

Here, price went up, and what happened to quantity?

Quantity-- this was our old equilibrium quantity.

This is our new equilibrium quantity.

Quantity also went up.

More people just want to buy apples.

They don't want to get cancer.

Now let's think about these scenarios right over here.

The pear cider industry launches an ad campaign.

And for the sake of this, let's assume

that the same growers who grow apples can also grow pears.

That makes it interesting.

So you have a couple of interesting things.

By launching this advertising campaign--

we're going to assume it's a good advertising

campaign-- this clearly will make demand go up for-- sorry,

it'll make demand go up for cider, for pear cider,

relative to apple cider.

Most people, when they think of cider,

they think of apple cider.

Now all of a sudden, pear cider comes out.

It'll make demand for apple cider go down.

So this is apple cider demand will go down.

Now, if apple cider demand goes down,

the apple cider producers are going to demand fewer apples.

So this is going to mean that apple demand will go down.

At any given price point, apple demand will go down.

So apple demand, the demand curve, will shift to the left.

Or I should say at any given price point,

the quantity demanded will go down.

And so the entire demand curve, the entire relationship,

will shift to the left.

Now, that's not all that might happen.

Because if you think about it from the suppliers

point of view, and I don't know if this really is the case,

but let's assume that the farmers who grow apples

can also grow pears.

Well, they might say, well, now that there's

more demand for pears, they're doing this advertising

campaign, I want to-- and probably the price of pears

has gone up-- they might say, well,

I'm going to devote more of my land to pears and less

of my land to apples.

And so the supply of apples-- so apple supply-- want to be clear

here that we're talking about apple-- the apple supply

might go down.

So it'll also shift to the left.

So they're both shifting to the left.

Now what is likely to happen here?

So the demand went down and the supply went down.

They both shifted to the left.

Well, here the way I drew it, this was our old equilibrium

price, this is our new equilibrium price.

It actually looks the way that I drew it right over here,

that it did not change.

The equilibrium quantity definitely did change.

So let's see, this is our old equilibrium quantity.

This is our new equilibrium quantity.

This clearly, the quantity, went down.

It was a bad day for apples.

But the price didn't change, because, at least

in the example, we assume that the farmers actually also

produced fewer apples.

It turns out, I could have drawn this in multiple ways.

And actually, let me draw it in different ways here.

So the quantity definitely-- so let's

think about other scenarios.

Let me draw it slightly different.

Let's say that the supply goes down even more dramatically.

So let's say the supply shifts all the way-- the supply shifts

really far back.

Now, what happened?

Well now, our equilibrium price--

because the reduction in supply was kind of more extreme

than the reduction in demand.

And it really depends on how the curve shapes and all of that.

The main thing is to reason through it

or to actually see what the actual results are.

But in this situation, all of a sudden that the price went up,

but the quantity definitely still went down.

So in this case, the one thing that you're always

going to be sure of is that the quantity

will go down but the price went up.

Because this effect-- the supply went down much more

than the demand did.

And so the price went up.

Now I could have done another scenario.

I could have done another scenario where maybe the supply

barely budged or maybe the demand went down dramatically.

Let me draw it where the supply barely budges.

So maybe the supply, it only gets shifted a little bit

to the left.

So maybe the supply curve looks like this.

Now all of a sudden, once again, quantity definitely goes down.

So in all of the scenarios, the quantity will go down.

But I've just done three scenarios where the price could

be neutral, the price could go up, or the price could go down.

So you actually don't know what is

going to happen to the price based on this.

You would actually have to look at the actual curve

and see what the new equilibrium prices are.

Now let's look at this one.

The apple pickers unionize and they demand wage increases.

So this is an issue for the suppliers.

So all of a sudden, one of their inputs,

one of their costs of production, which is labor,

has gone up.

So if their cost of production has gone up,

now at a given price point, they are less profitable,

less willing to produce apples.

So at a given price point-- so we're

talking about the suppliers-- at a given price point,

they will supply a lower quantity.

So this is going to lower supply.

And when you lower supply, what's going to happen?

Well, your equilibrium quantity--

this was our old one, this was our new one-- equilibrium

quantity definitely goes down, the quantity went down.

And what happened to the price?

We're assuming nothing changes to the demand.

So this was our old equilibrium price.

This is our new equilibrium price.

It went up.

Quantity went down, and price went up.

And I encourage you to-- well one,

I should have told you this at the beginning, too.

You should have tried to do these yourself and then see

what I had to say about them-- but I

encourage you to try this out with different situations.

Think of situations yourself and even

think about different markets other than the apple market.