Market equilibrium | Supply, demand, and market equilibrium | Microeconomics | Khan Academy

Khan Academy
2 Jan 201210:16
EducationalLearning
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TLDRThis video script explores the dynamics of apple market economics, illustrating the interaction between supply and demand at varying prices. It visually demonstrates how high prices lead to low demand and vice versa, using a graph to depict the equilibrium point where supply meets demand. The script also discusses market reactions to shortages and surpluses, showing how prices adjust to reach a balance, ultimately converging at an equilibrium price of $2.15 per pound for apples.

Takeaways
  • 📊 The script introduces a basic economic model using the apple market to explain the concepts of supply and demand.
  • 📈 The vertical axis represents the price per pound, and the horizontal axis represents the quantity of apples in thousands of pounds.
  • 🍏 At high prices, the quantity demanded is low, and at low prices, the quantity demanded is high, illustrating the law of demand.
  • 📉 The supply curve starts at a certain price point where producers are willing to produce apples, and the quantity supplied increases with the price.
  • 💡 The script emphasizes the difference between 'demand' and 'quantity demanded', highlighting the importance of understanding the entire relationship.
  • 🛒 At a price of $1 per pound, there's a shortage of apples because the quantity demanded (4000 pounds) exceeds the quantity supplied (1000 pounds).
  • 📈 In a shortage, prices tend to increase as consumers bid up for the limited supply, encouraging producers to increase production.
  • 📉 Conversely, at a price of $3 per pound, there's a surplus of apples because the quantity supplied (3000 pounds) exceeds the quantity demanded (1300 pounds).
  • 💸 In a surplus, producers may lower the price to attract consumers and reduce the quantity supplied to match demand.
  • 🔄 The market adjusts through price changes, moving towards an equilibrium where the quantity supplied equals the quantity demanded.
  • ⚖️ The equilibrium price is identified as $2.15 per pound, with an equilibrium quantity of 2200 pounds, representing a balance between supply and demand.
Q & A

  • What is the vertical axis in the graph representing the apple market?

    -The vertical axis represents the price axis, specifically the price per pound of apples.

  • What does the horizontal axis in the graph signify?

    -The horizontal axis signifies the quantity of apples, measured in thousands of pounds for the given period.

  • How is the demand for apples affected by a high price?

    -When the price of apples is high, the quantity demanded by consumers is low because they are less willing to purchase at a higher cost.

  • What is the difference between 'demand' and 'quantity demanded'?

    -Demand refers to the entire relationship between price and quantity that consumers are willing to buy, while 'quantity demanded' is the specific amount of goods consumers want to purchase at a given price.

  • What does the supply curve represent in the apple market?

    -The supply curve represents the different quantities of apples that producers are willing to supply at various prices.

  • What is the minimum price at which producers are willing to start producing apples according to the script?

    -Producers are willing to start producing apples at a minimum price of 50 cents per pound.

  • What happens when there is a shortage of apples at a price point of $1 per pound?

    -A shortage occurs when the quantity supplied (1000 pounds) is less than the quantity demanded (4000 pounds), leading to increased competition and potentially higher prices in the next period.

  • What is the natural response to a shortage in the market?

    -In response to a shortage, prices tend to increase as consumers bid up for the limited supply, and producers may increase production to meet the higher demand.

  • What scenario creates a surplus of apples?

    -A surplus occurs when the price is set too high (e.g., $3 per pound), resulting in a quantity supplied (3000 pounds) that exceeds the quantity demanded (1300 pounds).

  • What actions might producers take in response to a surplus of apples?

    -Producers might lower the price to attract more consumers and reduce the quantity of apples they produce to match the lower demand.

  • What is the equilibrium price and quantity in the apple market scenario described?

    -The equilibrium price is where the quantity supplied equals the quantity demanded. In this scenario, it is approximately $2.15 per pound, with an equilibrium quantity of about 2200 pounds.

Outlines
00:00
🍏 Apple Market Dynamics: Demand and Supply Analysis

This paragraph introduces the concept of analyzing the apple market by considering both demand and supply at varying prices. A graph is drawn with the vertical axis representing price per pound and the horizontal axis representing quantity in thousands of pounds for the upcoming week. The demand curve is explained as having a low quantity demanded at high prices and a high quantity demanded at low prices, with a specific example given at $5 and $1 per pound. The supply curve is introduced with a base price where production begins and increases with higher prices. The paragraph sets the stage for understanding market equilibrium and imbalances.

05:01
📈 Impact of Price Fluctuations on Apple Supply and Demand

This paragraph explores the consequences of price changes on the apple market. It describes scenarios where producers set the price at $1 per pound, leading to a shortage as the quantity demanded (4000 pounds) exceeds the quantity supplied (1000 pounds). The natural response to this shortage is an increase in price and production in subsequent periods. The paragraph then discusses the opposite scenario where an overestimation of demand leads to a surplus at a price of $3 per pound, causing a decrease in price and production. The goal is to reach an equilibrium price where supply equals demand, which is estimated to be around $2.15 per pound.

10:01
💰 Achieving Market Equilibrium in the Apple Market

The final paragraph concludes the discussion by highlighting the ideal scenario where the apple market reaches an equilibrium. At an equilibrium price of $2.15 per pound, the quantity supplied (2200 pounds) matches the quantity demanded, benefiting both consumers and producers. This scenario ensures that all apples are sold without any going to waste, indicating a balanced and efficient market.

Mindmap
Keywords
💡Demand
Demand refers to the quantity of a product that consumers are willing and able to purchase at various prices during a given period. In the video, the concept is illustrated through the hypothetical apple market, where the demand curve shows that at higher prices, less quantity is demanded (e.g., 500 apples at $5 per pound), and at lower prices, more quantity is demanded (e.g., 4000 pounds at $1 per pound).
💡Supply
Supply is the total amount of a product that producers are willing to sell at various prices during a given period. The script discusses the supply curve for apples, indicating that at a price of 50 cents, producers are just willing to start producing, and as the price increases, so does the quantity supplied (e.g., 1000 pounds at $1 per pound).
💡Price Per Pound
Price per pound is the cost at which a product, in this case apples, is sold per unit of weight. The video script uses this term to set the vertical axis of the graph, with prices ranging from $1 to $5 per pound, to analyze how changes in price affect the supply and demand for apples.
💡Quantity Demanded
Quantity demanded is the specific amount of a product that consumers are willing to buy at a particular price. The script emphasizes the distinction between 'demand' and 'quantity demanded,' using the example that at a price of $5, the quantity demanded is 500 apples, whereas demand represents the entire relationship between price and quantity.
💡Quantity Supplied
Quantity supplied is the amount of a product that producers are willing to offer for sale at a specific price. In the script, the scenario where producers plan to sell apples at $1 per pound and supply 1000 pounds illustrates the concept of quantity supplied.
💡Shortage
A shortage occurs when the quantity supplied is less than the quantity demanded at a given price. The video describes a situation where at $1 per pound, there is a shortage of 3000 apples because the quantity demanded (4000 pounds) exceeds the quantity supplied (1000 pounds).
💡Surplus
Surplus is the opposite of a shortage, where the quantity supplied exceeds the quantity demanded at a given price. The script explains that at a price of $3 per pound, there is a surplus of 1700 pounds of apples because the quantity supplied (3000 pounds) is more than the quantity demanded (1300 pounds).
💡Equilibrium Price
Equilibrium price is the price at which the quantity supplied equals the quantity demanded, resulting in a market balance. The video concludes with the concept that the equilibrium price for apples might be around $2.15 per pound, where the quantity supplied and demanded are equal.
💡Equilibrium Quantity
Equilibrium quantity is the amount of a product that is bought and sold at the equilibrium price. The script suggests that the equilibrium quantity of apples could be around 2200 pounds, which is the point where the supply and demand curves intersect.
💡Bidding Up
Bidding up refers to the process where the price of a product increases because consumers are competing to purchase it. In the script, when there is a shortage of apples at $1 per pound, consumers start bidding up the price as they compete for the limited supply.
Highlights

Introduction to the concept of demand and supply for apples at different prices with a graph.

Explanation of the price axis and quantity axis on the graph.

Tick marks set for price per pound and quantity in thousands of pounds for the next week.

Drawing of the demand curve and its relationship with high prices leading to low quantity demanded.

Clarification of the difference between demand and quantity demanded.

Illustration of the supply curve starting from a minimum price point of 50 cents.

Description of the increase in quantity supplied as the price increases.

Scenario analysis of suppliers planning at a price point of $1 per pound leading to a shortage.

Discussion on the natural market response to a shortage, including price increase and production adjustment.

Exploration of the impact of setting the price too high, leading to a surplus of apples.

Analysis of the market dynamics in a surplus situation, including price reduction and decrease in production.

Convergence of price and quantity towards the equilibrium point where supply equals demand.

Identification of the equilibrium price and quantity as $2.15 per pound and 2200 pounds respectively.

Explanation of the equilibrium as the ideal scenario for both consumers and producers.

Emphasis on the importance of the equilibrium point for market stability and satisfaction of both parties.

Overview of the entire process from shortage to surplus and reaching equilibrium in the apple market.

Transcripts

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Related Tags
Supply and DemandEconomic TheoryApple MarketPrice AnalysisQuantity DemandedProduction PlanningMarket EquilibriumConsumer BehaviorProducer ResponseEconomic GraphsEducational Video