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  • We've talked a lot about demand.

  • So now let's talk about supply, and we'll

  • use grapes as this example.

  • We'll pretend to be grape farmers of some sort.

  • So I will start by introducing you--

  • and maybe I'll do it in purple in honor of the grapes--

  • to the law of supply, which like the law of demand,

  • makes a lot of intuitive sense.

  • If we hold all else equal-- in the next few videos,

  • we'll talk about what happens when

  • we change some of those things that we're

  • going to hold equal right now-- but if you hold all else

  • equal and the only thing that you're doing

  • is you're changing price, then the law of supply

  • says that if the price goes up-- I'll just say p

  • for price-- if the price goes up,

  • then the supply-- now, let me be careful--

  • the quantity supplied goes up.

  • And then you can imagine, if the price goes down,

  • the quantity supplied goes down.

  • And you might already notice that I

  • was careful to say quantity supplied.

  • And it's just like we saw with demand.

  • When we talk about demand going up or down,

  • we're talking about the entire price-quantity relationship

  • shifting.

  • When we talk about a particular quantity demanded,

  • we say quantity demanded.

  • We don't just say demand.

  • This is the exact same thing for supply.

  • When we're talking about a particular quantity,

  • we'll be careful to say quantity.

  • If we talk about supply increasing,

  • we're talking about the entire relationship shifting either up

  • or down.

  • So let's just make sure that this

  • makes intuitive sense for us.

  • And I think it probably does.

  • Let's think about ourselves as grape farmers.

  • And I'll make a little supply schedule right over here.

  • So Grape Supply Schedule, which is really just a table showing

  • the relationship between, all else

  • equal, the price and the quantity supplied.

  • So let's label some scenarios over here,

  • just like we did with the demand schedule.

  • Scenarios.

  • And then let's put our Price over here.

  • This will be in price per pound, the per pound price of grapes.

  • And then this is the quantity produced over the time period.

  • And whenever we do any of these supply or demand schedules,

  • we're talking over a particular time period.

  • It could be per day, it could be per month,

  • it could be per year.

  • But that's the only way to make some sense of, OK,

  • what is the quantity per day going

  • to be produced if that's the price?

  • So if we didn't say per day, we don't

  • know what we're really talking about.

  • Quantity Supplied.

  • And so let's just say Scenario A,

  • if the price per pound of grapes is $0.50--

  • if it's $0.50 per pound-- actually,

  • let me just do round numbers, but you get the idea.

  • If the price per pound is $1, let's just say for us,

  • we consider that to be a relatively low price.

  • And so we'll only kind of do the easiest land,

  • our most fertile land, where it's easy to produce grapes.

  • And maybe the fertile-- and sheep land.

  • So no one else wants to use that land for other things.

  • It's only good for growing grapes.

  • And so we will provide-- so this is price per pound.

  • And in that situation, we can produce

  • 1,000 pounds in this year.

  • And I've never been a grape farmer,

  • so I actually don't know if that's a reasonable amount

  • or not, but I'll just go with it, 1,000 pounds.

  • Now, let's take Scenario B. Let's

  • say the price goes up to $2.

  • Well now, not only would we produce

  • what we were producing before, but we might now

  • want to maybe buy some more land, land

  • that might have had other uses, land that's maybe not

  • as productive for grapes.

  • But we would, because now we can get more for grapes.

  • And so maybe now we are willing to produce 2,000 pounds.

  • And we can keep going.

  • The same dynamics keep happening.

  • So let's say the price-- if the price were $3 per pound,

  • now we do want to produce more.

  • Maybe we're even willing to work a little harder or plant things

  • closer to each other, or maybe I'll

  • get even more land involved than I would have otherwise used

  • for other crops.

  • And so then I'm going to produce 2,500 pounds.

  • And I'll do one more scenario.

  • Let's say Scenario D, the price goes to $4 a pound.

  • Same dynamic, I will stop planting other crops,

  • use them now for grapes, because grape prices are so high.

  • And so I will produce 2,750 pounds.

  • And so we can draw a supply curve

  • just like we have drawn demand curves.

  • And it's the same exact convention,

  • which I'm not a fan of, putting price on the vertical axis.

  • Because as you see, we tend to talk about price

  • as the independent variable.

  • We don't always talk about it that way.

  • And in most of math and science, you

  • put the independent variable on the horizontal axis.

  • But the convention in economics is

  • to put it on the vertical axis.

  • So price on the vertical axis.

  • So then this is really Price per pound.

  • And then in the horizontal axis, Quantity

  • Produced, or-- let me just write it.

  • Quantity Produced, I'll say in the next year.

  • We're assuming all of this is for the next year,

  • so next year.

  • And it's in thousands of pounds, so I'll

  • put it in thousands of pounds.

  • And so let's see, we go all the way from 1,000

  • to close to 3,000.

  • So let's say this is 1,000, that's

  • 1 for 1,000, that's 2,000, and that is 3,000.

  • And then the price goes all the way up to 4.

  • So it's 1, 2, 3, and then 4.

  • So we can just plot these points.

  • These are specific points on the supply curve.

  • So at $1, we would supply 1,000 pounds, at $1, 1,000 pounds.

  • That's Scenario A.

  • At $2, we would supply 2,000 pounds, $2,

  • we'd supply 2,000 pounds.

  • That's scenario B. At $3, we'd supply 2,500 pounds, $3-- oh,

  • sorry.

  • Now, when we look up-- See, now notice, I get my axes confused.

  • This is Price.

  • This isn't, when we talk about it this way,

  • that we're viewing the thing that's changing.

  • Although, you don't always have to do it that way.

  • So at one $1, 1,000 pounds. $1, 1,000 pounds.

  • $2, 2,000 pounds. $2, 2,000 pounds.

  • $3-- this isn't $3, this is $3.

  • $3, 2,500 pounds.

  • So right about there.

  • That's about 2,500.

  • But I want to do it in that blue color,

  • so we don't get confused.

  • So $3, 2,500 pounds.

  • That's about right.

  • So this is Scenario C.

  • And then Scenario D, at $4-- actually,

  • let me be a little bit clearer with that,

  • because we're getting close.

  • So this is 2,500 pounds, gets us right over here.

  • This is Scenario C. And then Scenario D at $4, 2,750.

  • So 2,750 is like right over there.

  • So that is $4.

  • That is Scenario D.

  • And if we connect them, they should all

  • be on our supply curve.

  • So they will all be-- it will look something like that.

  • And there's some minimum price we

  • would need to supply some grapes at all.

  • We wouldn't give them away for free.

  • So maybe that's something-- that minimum price is over here,

  • that just even gets started producing grapes.

  • So this right over here is what our supply curve

  • would look like.

  • Now remember, the only thing we're varying here

  • is the price.

  • So if the price were to change, all else equal,

  • we would move along this curve here.

  • Now, in the next few videos, I'll

  • talk about all those other things we've been holding equal

  • and what they would do at any given price point to this curve

  • or, in general, what they would do to the curve.

We've talked a lot about demand.

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B1 US price supply quantity scenario pound demand

Law of Supply

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    Bravo001 posted on 2014/10/03
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