welcome back so we're gonna take off right where we left off after our supply lecture um and now we're gonna put supply and demand together and i'm gonna do like literally i'm gonna do that i'm gonna take the supply curve and the demand curve from our two different examples right it was most about the market for pizza i don't put them on the same graph and that's what we have so far this is so what supply sorry let me backtrack when people say where do prices come from and the answers are supply and demand what we're saying here is that when we look at this demand schedule if someone asked you i went back too far if we look at this demand schedule or this demand curve and someone asks you what's the price of pizza going to be we don't know the answer the demand isn't enough to tell the story and if we look at the supply that's not enough to tell the story okay we need more to understand how prices are impacted i'll give you the general gist of it when things are in high demand that means people want to buy a lot of it prices tend to be higher because people are willing to pay for it so so things that are in high demand tend to have higher prices things that are in short supply things that are rare things it's hard to get your hands on they tend to be higher prices when things are in low demand no one really wants it it's kind of hard to charge a lot for it and so those things tend to have lower prices when things are abundant they're in large supply you can get it anywhere they tend to be lower prices so that's the idea but to really get the price of a certain good you need both elements okay if something is in high demand and high supply which one's going to win that's why we need to put these things together and so that's why the first thing i'm going to do is i'm going to put that supply schedule that demand schedule those curves together on one graph there's a question coming up regarding this graph and i bet you you already know the answer right if i asked you this this question what's the price going to be i bet intuitively you know what to look for uh and you're right i mean i'm not like the spoiler alert it's where the two lines cross right we're gonna get there but we're going to start by saying what happens if the price is too high so what happens if the price of a good is too high well if the price of a good is too high then producers will want to supply a large amount of the goods of service remember the law of supply says a higher price sellers want to sell more so producers are going to want to sell a lot at a high price that's too high consumers won't want to buy as much remember the law of demand says as the price is high consumers want to purchase less so if sellers want to sell a lot and producers don't want to buy as much that's what we call excess supply another term for that is a surplus excess supply or a surplus it means you have unsold items that are left on the shelves that means you have if you have the producers are putting a bunch of this item on the shelf because they want to sell it and people aren't buying it because the price is too high you're left with stuff left on the shelves and that's a signal to the producer to lower the price so suppose the price of a pizza is set at 16 again remember this is our picture that has the supply curve and demand curve put there together what we can see is at that price of 16 the supply is greater than the demand let me pull out my little marker and show you right here so add that price of 16 if i look at the supply curve at 16 i get this point right here which tells me that the sellers of pizza want to sell 600 pizzas that's how many they're gonna they're hoping to sell but buyers are only willing to purchase 300 at that price so what happens we have unsold pizza or we have i mean we have think about as they like the ingredients never got turned into pizza you're not selling the pizza you wanted to sell you're left with unsold inventory sorry my mouse my cursor disappeared again like i said this happens every time i know what i'm doing to make it happen and i can't stop myself okay so if people want to buy 300 sellers want to sell 600 there's this excess supply or surplus of 300 pizzas okay that's a signal to the to the cons the sellers that this price is too high that's a message to them that's saying you know what that price is higher than it should be what happens if the price of a good is too low well with low prices producers don't want to sell as much remember at low prices that means producers aren't as interested in producing it consumers i didn't i have to correct this sorry that's twice already in these notes so consumers will want to purchase a large amount um at that low price right at a low price consumers want to buy more and more and more this is called excess demand or a shortage so shortage occurs when people want to buy more than what's available because suppliers aren't willing to sell as much producers struggle to keep goods available things are flying off the shelves and this tells the producers they can safely raise their prices so let's say in our same graph the price of pizza is eight dollars well at that price there is now a shortage of six of 300 pizzas and again i'll show you the same way at a price of eight dollars the supply curve tells us that sellers are only willing to sell 400 pizzas at that price they're not wanting to sell more pizza because they're not getting very much profit whereas the demand there's enough demand for 700 pizzas that means there's a shortage or excess demand of 300 pizzas the difference between 700 and 400. so that excess demand is a signal to these man i the third mistake i have to go back and just re read these entire slides it's there's a this price at this price there is a surplus of 300 pizzas and sellers need to raise their price hopefully you can tell what's going on with these typos it is because so much of this is mirrored in itself i copy and paste and then edit and obviously i copy and paste it and didn't do the edit part um probably because i was doing trying to multitask or something so my bad i will fix these before i publish them for you so when the quantity demand and the quantity supply happen to be equal we call that equilibrium so why was there equilibrium because if the price is too high the moral that story was there's going to be a surplus and sellers need to lower their price if the price was too low there's going to be a shortage in the moral of the story is sellers need to raise their price so too high prices go down too low prices go up and it's kind of got to stop somewhere that's why we call it equilibrium equilibrium means in balance right this means the amount consumers want to buy is balanced with the amount producers want to sell there's no need to increase the price there's no need to decrease the price graphically we'll see this where the supply and demand curve intersect so in this case at a price of 12 there are 500 pizzas supplied and 500 pieces demanded again let's do the same thing one more time at a price of 12 the supply curve tells me that sellers want to sell 500 pizzas the demand curve tells me buyers want to buy 500 pizzas perfect in economics we say the market clears meaning you're left there's not stuff left on the shelves and you're not things aren't flying off the shelves and on uh at an unsustainable pace instead you're exactly where you want to be where you're selling exactly the amount you want to sell as a producer okay and then there so like i said there's no need to increase or decrease the price when this is the case looking back at our table we can see that happens right here at any of the prices above 12 at 14 16 18 you'll notice there's a surplus there's excess supply prices would be pushed down so look at any of these prices here there's a surplus of 150 pizzas here there's a surplus of 300 pizzas and here there's a surplus of 450 pizzas at any price above 12 sorry and only price below 12 there's a shortage here there's a shortage of 250 pizzas here there's a shortage of 300 pizzas here's the shorts of 150 pizzas here there's no shortage there's no surplus there's no pushing up there's no pushing down here things are exactly where they're supposed to be this is what economists mean when they say the invisible hand controls prices so that's something you'll see in economics this this concept the invisible hand and what the invisible hand is it's basically a nickname for a free market meaning in this model the government doesn't have to say hey pizza should be 12 the free market just dictates the price it pushes it that's what i mean by an invisible hand it pushes prices up if they're too low it pushes prices down if they're too high and it kind of gets the price to settle at for lack of a better word where it should be okay and that's what we mean by the invisible hand no excuse me okay so that's equilibrium what's left in this chapter is to talk about what happens when supply or demand change okay remember both our supply curve energy demand curve had that phrase all else remains equal so that's what we have left in this chapter talk about what happens when not everything remains equal and when things change and so uh there are a couple more lectures and um but i'm going to end this one and we'll start that one in just a bit