okay uh welcome back everyone so today we are going to continue on um discussion about chapter four which is the market forces of supply and demand so for today's um lecture we're going to cover about the market supply and demand together so previously we talk about Supply um by itself and also Demand by itself yeah now we want to talk about both of them together how they can actually interact in the market and as well to analyze change in the equilibrium that is made because of the interactions between supply and demand so first let's um start with the equilibrium so in the equilibrium various forces are inbalance and here we are talking about supply curve and demand curve so Supply in market and um demand in Market in the equilibrium uh it is actually a situations in which market price has reached the level where our quantity supplied is equal to our quantity demanded so supply and demand is in the same level and therefore uh in that level we achieve our equum so if we can imagine a supply curve and demand curve equilibrium is where B of the curve is actually intersect right here here we have Supply that is the amount of goods uh that seller are willing and able to sell as well as demand the amount of goods that buyers are willing and able to purchase so we know previously that the supply curve is upward slopping while the demand curve is downward slopping when we want to talk about equilibrium the equilibrium will be the intersections between this demand curve and supply curve so this point over here will be our equilibrium point so let's have a bigger picture so the yellow point over here is our eum so we say here uh we have a market equilibrium which is where the supply curve and and sorry and demand curve intersect so we have our price is in PE equ equilibrium price and our quantity is in QE which is our equilibrium quantity okay so we just imagine how the market achieve its balance yeah where the equilibrium happen where the supply is equal to demand sorry where the supply curve and demand curve intersect or where the quantity supplied is equal to Quant demand however is it possible that market is not in equum so if we think about it can we imagine Market not in equilibrium the answer is actually yes so there are several cases where the market is actually not in equilibrium the first one called Surplus so Surplus happen when the quantity supplied is actually bigger than quantity demanded so before we know that the equilibrium happens when the quantity supplied is equal to quantity demanded so when it is not equal there will be uh unbalance in the market yeah the market will be not in its equilibrium so in this case where the quantity suppli is bigger than quantity demanded we call it a surplus meaning that we have an excess of Supply yeah we we can imagine where uh the producers in Market uh produce a lot of um Goods but then the market is not act actually buying that good so a lot of access Supply in the market so when there's an acccess Supply in the market later on uh as the market responses to the excess of Supply there will be a downward pressure on this price that will lead to a movement along demand and supply curve which is increase in quantity demanded and decrease in quantity Supply let us um let us discuss with this graph over here so let's say sellers now casually set a higher price so uh when the the the sellers is uh actually we have the supply curve over here and the demand curve over here and we know that the equ equilibrium price is actually 60 2.5 uh dollar per unit and the quantities will be 15 units yeah however say that seller wants to set a higher price than 62.5 which is25 so when all the sellers in the market sat uh selling the goods in that $75 there will be a uh uh excess of Supply where in here you might see that the quantity demanded is 10 units however the quantity Supply is 20 units so we will have an excess of Supply about 10 units yeah in here we have excess of Supply which is equal to 20 minus 10 is 10 unit 20 is from quantity uh quantity supplied and 10 is from quantity demanded so we have excess supplies of 10 units and because of that Market is not in equilibrium therefore that uh in response to that access Supply there will be a downward pressures on the price from the market so when you think about um a sellers who has a lot of inventory on their um on their shops let's say when they have a lot of access supplies there will be uh they they they will think uh they will think something like to reduce the price of the products so that the um the the quantity that they sell can be sold yeah so without uh without being communicating to each other the suppliers the suppliers in the market is actually will think of doing um doing uh reducing their price um so that the so that the things they sell can be sold in the market so from the 75 uh the suppliers will gradually um lower their prices so the donor pressures of the price in this case will then um arrive later on in the initial equum so they will go back to the previous level where the uh the equ price is actually hold yeah so Market interaction drives the price back to the previous level because there is an excess Supply the suppliers want to think of um selling its goods in the cheaper price so that so that there will be increase in quantity demanded and will be decrease in quantity supplied and at the end they will arrive in the initial equum so the quantity demanded and quantity supplied is therefore back to an efficient point so equilibrium will be our efficient Point yeah where there there is no excess of Supply or later on we going to talk about shortage as well so that is the first case where the market is not in equilibrium the second case is shortage the one that I have just mentioned this a moment ago so shortage is um is a opposing um condition uh of uh Surplus which is in the shortage we have a quantity demanded is actually bigger than quantity suppli so you you can think of demand is bigger than the supply we call it uh we also call it shortage or excess of demand in the excess of demand uh the market will response by giving an upward pressures on the price that will creates a change in the supply and demand that which is the movement along the demand and Sur uh and supply curve which are decrease in quantity demanded and increase in quantity Supply so let's talk it with another graphs over here so similar to the previous case we have our initial equum $62.5 for price and 15 units for um quantity say sellers casually set a lower price so all the sellers set the lower price which is [Music] $50 setting highest market price loow 50 uh do per units price change however other things other factors remain unchange so in here we only think of um change in price yeah so the price from 62.5 now we want to analyze price is now $50 so in this you can see that the quantity Supply and quantity demand is not equal so that in here we see that quantity Supply is 10 and quantity demand is scor and the quantity demand is 20 yeah so here we have an axis of demand or shortage which is equal to um 20 minus 10 20 is quantity demanded and 10 is quantity Supply so we have access demand of 10 units so because of this um access of demand the market will responds to creating a pressur upward towards an initial price of the goods yeah in this uh in this uh position Market is not in equilibrium the there will be a pressures to uport the the price from the market since now uh there there is an excess of demand so you able to think of let's say we want to talk about um price for example let's say uh there is an uh there is um a cheaper price of price in the market so that people wants to buy price is more than before so in this case usually they in the $62.5 they want to uh buy Market wants to buy at 15 units but in but when the price is $50 Market is uh wanting it more yeah so they won 20 units now because it's now cheaper so because of this increase in quantity demanded and in the same time decrease in quantity Supply because of the decrease in price there will be an excess of demand so a lot of people wants the demand but not so much people wants to supply it so you you will see a scarcity in the market where you hardly find the rice because the supply is it but a lot of people wants the goods so in this case there will be an upward pressures towards the initial Point towards the equ market because then the suppliers will think of um increasing their prices because a lot of people wants the product yeah so they increase the prices gradually and people start to decrease the quantity they demanded so that we going back to the initial efficient point which is the equium from this um shortage before so uh market so in equilibrium in the market or uh is is is an is an efficient point and where the market is not in the equilibrium um uh the condition or the situation is usually a temporary um cases yeah because usually there will be a upward uh pressure or downward pressures from the market this this equilibrium towards the market equilibrium so this is kind of like wrap up from the two cases that we have just uh learned so there in case a there is Surplus and there will be a downward pressures toward the equilibrium and in this Surplus we know that quantity supplied is bigger than quantity demanded so we have Surplus don't work pressures to the to the equilibrium where the quantity demanded decreasing and quantity supplied sorry the quantity demanded increasing the quantity supplyed decreasing and in the seconda case which is the case b over here this is a shortage we have an excess of demand where the quantity supplied less than quantity demanded in this case there will be an upward pressures towards the this towards the equilibrium quantity Supply will increase and quantity demand will decrease okay so in most markets surpluses and shortages are temporary a mechanism in a market where they will put uh pressures upward or downward towards the balance in the market which is the equilibrium right so we have uh we have discussed about the market this equilibrium which uh we have two cases Surplus and shortage and when we want to see how the supply and demand interact in the market and how the equilibrium is actually um created we want to have kind of like Steps in analyzing the change in equilibrium so these steps can help you to better analyze the equilibrium in the market since sometimes it is quite confusing to determine whether the shift is on the uh to to the left or shift to to the right or or there will be only the movement along the curve for example so these steps able to help students to later on end up with the right answers when we talk about the equilibrium yeah so the first step is to decide whether the event shifts the supply curve or the demand curve or in some cases both of theur C so in here uh if a factor change we want to consider whether the change is actually uh Shifting the curve or only create a movement along the curve yeah and afterwards we want to think of whether it actually change Supply curve or demain curve or both of the curves so we want to think of whether the change is actually affecting which side of the market is it Supply or is it demand or is it both of them the second step is to decide the directions of the change is it going to movement along the curve uh to the right or to the left or Shifting the curve to the right or to the left yeah so the directions for the Second Step the last one is to use the supply and demand diagram on your analysis so that you can compare the initial and the new equilibrium as well as you know the effect on equum price and quantity so it it is better to draw the initial curve in the market and then also draw the change of the curve because of a factor in the same curve in the same graph yeah so that you able to see how is it different from the initial equilibrium so let's have an example here A change in Market equilibrium due to a shift in demand so one summer very hot weather effect what is the effect of that very hot weather on the market for ice cream so if you think about it in the hot weather We crave more of ice cream yeah we want to eat ice cream so our demand curve will shift to the right so first uh first thing uh first is we want to know which curve is being affected by this very hot weather we know that it will uh it will um affect our demand curve yeah which is considered as The Taste factor in the demand curve for uh for in the market for ice cream so we know that it will affect demon curve and since it is tast we know it will shift the demand curve so the first step we know that hot weather will shift the demand curve second one we want to think of uh the directions yeah so very hot weather we want to eat more ice creams so that so because of that we know that the demand curve will shift to the right because if it's increasing demand the Curve will shift to the right the third one we want to analyze the initial point of equilibrium compared to the um the change in the in the supply or uh demand curve so let's ask first draw the initial curve so let's say we have um demand curve and supply curve like this every time you create a um graph for supply and demand please do label all the arrow all the curve even like putting zero here is also a good uh a good details so our demand curve our supply curve we know that our equilibrium is here so this is our equilibrium one over here and a very hot weather shifts the demand curve to the right so we know that the demon Curve will shift to the right so it will shift to the right we get our D axent curve over here so in this case we know that our equilibrium will move yeah so it will be now here in equilibrium two so in this case if we compare the price equilibrium price and the quantity equilibrium we know that the price is higher now and the quantity equilibrium is also higher so for the third state we know that we have a higher equilibrium price as well as higher equilibrium quantity yeah so every time you want to analyze the change in the market uh you need to draw the uh graph like this one over here so this is uh the proper graph of the previous questions with uh some more details yeah so this is the initial aquarium moving up to the new aquarium we see that prices increase the quantity is increased now let's talk about another example which is one summer a Hurrican destroy part of the sugar sugar cane crops which affect on uh giving the higher price of sugar so because of the hurricans destroy the sugar can crops the price of sugars is now increased so the question will be what will be the effect on the market for ice cream the first step will be you want to think of whether the Evac here the factor that is changing sorry higher price of sugar affecting demand or supply curve so if we think of a market for ice cream we know sugar is actually a raw material for ice cream so higher price of sugar will will affect the supply curve yeah affect supp curve through input price Factor yeah so input price will change the supply curve second one we want to know the directions when we think of uh Supply price sorry when we think about input price when we have an increase in input price we know that the supply curve will decrease sorry the supply will decrease so that we know that the supply curve will sh shift to the left yeah because if input price increase Supply is decreased the third one which is we want to compare between our initial equilibrium with the second equilibrium after the change so our demand curve and supply curve we know that the the one that is uh affected is supply curve and the directions will be shifting to the left so we go like this so now our initial equilibrium is over here and our second equilibrium will be over here so if we compare we able to see that the price is actually increasing but the quantity is actually decreasing yeah so we will have a higher equilibrium price and lower equilibrium quantity this is the proper graph for the previous example our quantity our equilibrium move from this initial one to this new equilibrium one let's move here so our price is increasing quantity is decreasing so yeah that will be some discussions of today's topic which is about the um Market forces and supply and demand and how act equilibrium is actually created and some cases where the market is not in equilibrium and how should we analyze a change in the market yeah next uh student needs to do the exercise that I have posted on model see you guys uh in a class