supply demand in equilibrium

we slide and shift the supply curve so those are the key areas the key things are number there here we go always exciting to kind of get rid of one of those now we're going to look at supply and demand and how they function at equilibrium okay so the basic idea of this section is to describe what markets do when surpluses and shortages exist so this is another topic heading your redacted notes and so what I'm going to do right here is actually I'm going to put two graphs side by side so we've got Q P Q and P and I'm going to show both of these markets looking roughly the same here's the man your supply is in equilibrium here's an equilibrium here's an equilibrium price there's an equilibrium price is the equilibrium quantity and here's an equilibrium point I'm just basically saying that here's a market here here's a market here both of them have a tendency end up at roughly the same price and now I want to show you two very different things happening in these marketplaces and we'll think about how the market forces are going to try to react what a price ends up being a little bit higher or lower than the actual equilibrium price so let's start over here in this market now I think there's a tendency when you're first starting could almost to think well markets must be an equilibrium no markets don't know what that equilibrium price is all that markets know is there some demand and some supply and these forces are going to try to balance each other out that's what markets know okay so in this market right here this would be the point where the markets would actually create those same number of sellers as the same number of buyers let's suppose that the price is high right now how's the market going to get to this that's the interesting question if the price is high let's go along and see what happens the first thing we would see at this high price that would come along we hit the demand curve and it seems that the quantity demanded is low actually makes sense to you right the price is high you and I don't want to buy very much of it but if the price is high sellers think to themselves that's a really good price we'd love to be able to sell at that price so the amount that they would supply is much larger right so now what do we have we've got the amount that sellers are going to supply being much greater than the amount demanded and that right there is a surplus of the good this gets back to the animal trading game that we did right so think back to all those aardvarks that were left over right if sellers had way more aardvarks than the number of artworks that people want to buy there was a surplus aardvarks what did we say would happen the next period when the game was played again how many aardvarks will be brought to the marketplace if you couldn't sell the ones you had last time we all agreed that if you were a celery and say I'm not bringing any more aardvarks right and so if the sellers start adjusting right because they can't sell all of these there's a huge surplus left over if they start adjusting the price downward right at the same time right what's going to happen is that as the price falls along the demand curve more people are going to be willing to buy them right so sellers going to start saying hey I'll take less for aardvarks and as soon as they start saying I'll take less for aardvarks some buyers to say well I'll buy a few aardvarks and this process here of sellers lowering the price and this encouraging buyers to buy more continues until we get to the equilibrium alright so so what I'm saying here is if a market happens to have a surplus that there's going to be an adjustment process that takes place through the lowering of price and once the price finds its way down to the equilibrium point then all of a sudden the surplus goes away that how mortgage markets resolve surpluses let's do the same thing over here that's why I had this other graph for us to look at now let's imagine that for whatever reason the price is too low okay so let's go through the same process and you can kind of Reason ahead here while I do this so now the price is low so here we go the first thing we come to is the supply curve and the quantity supply is going to be small right because the price is low so there's not much profit in it for sellers sellers don't want to make very much of this good but if the price is low notice that the quantity demanded is going to be high right you and I love low prices we want to buy a lot of it so that means in this case that we've got a shortage and there aren't enough goods to go around now we could think to back to the game and all the efforts trying to find liens which ran out really quickly right in our trading game right so there were a shortage of lines right and what does it mean well in the game itself it just means there was a shortage right but the next time period if you could come back with more of something you'd come back with more lines right because they were really valuable right so sellers say hey we're going to increase our supply right and they also know what that there was a shortage of line so they can bid up the price so as the price gets bit up sellers are going to bring more and as the price of lines increases consumers are going to demand less and this process continues until we find the equilibrium so now we have the price rising this is why we talk about prices and surpluses in georgia's it's not that sort pluses and charges can't exist or there's something wrong about them it's actually the opposite that surpluses and shortages convey information about the where the current price is relative to where it should be so when there's a surplus the information that's convey is that the price is too high and you're going to have to drop it right if you want to be able to sell everything that you produced over here when there's a sure age the information that's convey is the price is too low and you want to raise the price in order to be able to achieve the equilibrium so that's why we want to kind of think about it this way and that's how markets resolve these imbalances that exist in the marketplace okay that's another one of our ideas down

Channel: dmateer

Views: 468,143

Keywords: FlipShare, dirk mateer

Id: zPQyInnqvrI

Length: 7min 5sec (425 seconds)

Published: Sun Sep 11 2011