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EC251 07 Supply and Demand (part I) — Transcript

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0:00hello everyone and welcome again to
0:02macroeconomics
0:03this time week three now starting this
0:06week
0:07we are going to hit our stride and get
0:10into
0:10a common routine as it were because this
0:13week as you've noticed
0:14the readings are entirely from the
0:16textbook and that will be the case for
0:18most weeks that follow occasionally
0:20there will be supplementary readings but
0:22for the most
0:23for the most part we are going to be
0:25following the textbook rather closely
0:28skipping over some some chapters but
0:29we'll be following the textbook
0:31so this week is also the first week
0:35that we are going to go into some math
0:38uh because as you may know a lot of
0:41economics involves math
0:44it's not very advanced math you don't
0:45need to worry about that
0:47but it is math and there will be
0:49mathematical questions and problems on
0:51the quiz for this week and for most
0:53following weeks
0:55now the thing about math and its use in
0:57economics
0:58is that math is a way to express models
1:01everything that we show everything that
1:03we express using math
1:05can also be said in words but math is a
1:09more elegant sometimes called it's
1:11sometimes called a more elegant way to
1:12present it
1:13and even if you don't think that math is
1:14particularly elegant
1:16math can help us figure out exactly what
1:19we mean math is more precise
1:21than words so i can show you a graph
1:24or a table to illustrate a concept that
1:27might be perhaps difficult to grasp if i
1:29only explained it in words
1:31so math is a tool it's an aid it's
1:33something that helps us to understand
1:34what we're talking about
1:36we could do economics without math and
1:37in fact that was pretty much the case up
1:39until about 100 years ago
1:42because like i said everything can also
1:44be expressed in brain english in words
1:46but math helps us to understand things
1:49better it helps us to
1:51clarify exactly what we mean and what
1:53our models are
1:55so math is used for models remember the
1:57smiley face
1:58the smiley face the emoji at the
2:00beginning of the course
2:01that was a model and likewise everything
2:03that i'm about to do with math
2:05is a model it's a representation of the
2:07real world
2:08that deliberately skips over some
2:10details in order to focus on something
2:12that we're
2:13particularly interested in so always
2:15watch out for the details
2:17that our mathematical models leave out
2:20and always ask yourself or ask me
2:22or your classmates if those details
2:25might be important
2:26so maybe our mathematical models might
2:28be flawed in
2:29that they leave out important stuff
2:32sometimes we will get to that
2:35so with that the very first mathematical
2:38model that we will be discussing
2:40this semester is
2:43a model of supply and demand you will
2:46have heard
2:46this phrase demand and supply supply and
2:49demand
2:50many times you will have heard many
2:52people whether on the news or
2:54in in textbooks or on on youtube talking
2:57about
2:58um prices or current issues saying it's
3:01a matter of supply and demand
3:02oh the supply of this is higher the
3:04demand of that is higher
3:06it's all about demand and supply
3:09so much so that sometimes when i ask my
3:12students
3:12you know like in a classroom setting to
3:14define economics you know back to
3:16week one define economics some people
3:18will say it's about supply and demand
3:21that that's how prominent this concept
3:22of supply and demand is in economics
3:25and in fact it's used in both micro and
3:27macro
3:28we technically still haven't gotten to
3:30the part of the semester that is
3:32purely macro everything we've discussed
3:34so far
3:35is important for both micro and macro
3:38but it's just it's just the foundations
3:40of economics it has to
3:41it's the groundwork so we have to talk
3:43about the groundwork before we can go
3:45into more specifically
3:46macroeconomic stuff so we've laid the
3:49groundwork we're still weighing the
3:50groundwork
3:51this is week three the last one of
3:53talking about very general broad
3:55economic concepts that are used in all
3:58branches and types of economics
3:59including both macro
4:01and micro all right so
4:04supply and demand supply and demand
4:08is a model right so it's a
4:10representation of reality supply and
4:12demand is not something that exists out
4:14there
4:15like you can't go out into the
4:17marketplace and
4:18grab supply and show me the supply or
4:20grab demand and show me the demand these
4:22are abstract
4:23concepts they are based on
4:27very straightforward ideas namely that
4:30people want stuff
4:31right and uh or or need stuff
4:36and other people produce stuff and
4:39sell it well it depends on economic
4:42systems right you can have economic
4:43systems without money so
4:46maybe more generally rather than say
4:48sell it some people produce stuff
4:50and offer it in exchange for something
4:54okay so some people want or need stuff
4:57other people
4:58produce stuff and are willing to offer
4:59it if if you do something for them in
5:01exchange
5:03those are the concepts those are the
5:05realities actually
5:06that are the basis of demand and supply
5:09and that exists in any type of economic
5:11system in any economy
5:12not demand and supply but rather this
5:14idea that some people want stuff and
5:16other people are willing to offer them
5:17the stuff
5:18uh in exchange for something not
5:20necessarily money
5:22but in exchange for something
5:25this exists everywhere people want
5:27things people offer things
5:29but demand and supply these specific
5:32more specific concepts in this specific
5:34model is
5:36only something that exists in a market
5:38economy in a market-based economic
5:39system such as capitalism
5:41remember there are different types of
5:42economic systems some are based on
5:44markets
5:44and some are not to have supply and
5:47demand
5:48or or to have a an economy where this
5:50model can be applied
5:52you need to have a market-based economic
5:54system such as capitals
5:56okay so this only applies what i'm about
5:59to show you only a price in capitalism
6:02and one of the reasons why it only
6:03applies in capitalism is because it has
6:05to do with
6:06prices and we're buying and selling
6:07things for money
6:10which which also happens in
6:13feudalism for example and in other
6:14economic systems but it's only in
6:15capitalism
6:16that it's so generalized remember we
6:19talked about last week
6:20money has existed for thousands of years
6:23but it is only
6:24since the industrial revolution and only
6:26since the uh
6:27widespread adoption of capitalism that
6:29money has become so widely used that we
6:31buy
6:32everything we buy our clothes we buy our
6:34markers
6:35we buy our electricity that illuminates
6:37this thing
6:38everything that we have we buy that's a
6:40capitalist thing people bought and sold
6:42things
6:43in other systems too that are not
6:45capitalism but it was
6:47more rare and it wasn't something that
6:50you did for
6:50everything you have you didn't buy or
6:52sell everything
6:54you bought things once a month some
6:57people sold
6:58some of what they produced but not all
7:00of it
7:01and so on so
7:04buying and selling have existed for a
7:06long time it's only in capitalism that
7:08they are
7:09the way to get stuff the way to
7:12um do business it's only in capitalism
7:17that markets dominate
7:23okay so back to supply and demand
7:29let's talk first about demand
7:33what do we mean when we say demand in
7:35economics
7:36we do not mean simply the fact that
7:39people want things or need
7:41things that is a broader more general
7:43reality that exists in every economic
7:45system but demand
7:46or more specifically market demand as
7:48it's sometimes called to emphasize that
7:50it takes place
7:51within the market system demand is
7:54a relationship between the price of
7:57something
7:58and the quantity of that thing that
7:59people are willing and able
8:01to buy in fact the definition of demand
8:04provided by your textbook
8:06is that the demand of a certain good or
8:09service
8:10is the amount of that glitter service
8:13that people are willing
8:14and able to buy at a given price
8:18what do we mean by that first of all
8:22willing and able right
8:28if you are willing to buy something if
8:30you want it
8:31or you need it even but you are not able
8:34to buy it because you don't have enough
8:35money
8:36then you have no demand for it the
8:38textbook even specifically says
8:40that from from the perspective of
8:42mainstream economics
8:43we can say that homeless people have no
8:46demand for housing
8:48wait what homeless people don't want
8:50housing no
8:52that is not what i said i said homeless
8:55people have no
8:56demand for housing doesn't mean they
8:58don't want it they do
8:59want it they need it but if they cannot
9:02afford it they have no
9:04demand for it a person dying from cancer
9:06who cannot afford
9:08who cannot afford cancer treatment has
9:10no demand for
9:11cancer treatment according to economics
9:13according to mainstream economics right
9:15demand means being willing and able to
9:17buy something if you're not able to buy
9:19it
9:19even if you you need that thing to live
9:21then you have no
9:22demand for it so
9:25remember about models and their
9:30flaws that can come from um ignoring
9:33some aspects of the real world
9:34one of the major flaws in the demand and
9:37supply model specifically the demand
9:38part of it
9:39is that demand does not economic demand
9:42does not take into account
9:45people's needs in the sense that if you
9:47like i said if you need something but
9:49can't afford it then it doesn't count as
9:51demand so the the model
9:53of economic demand does not take into
9:55account the fact that
9:56some people might need things that they
9:59cannot buy that they cannot afford
10:02it only takes into account what you are
10:03able and willing
10:05to buy so having said that
10:08let's illustrate demand using
10:11actually the same example that is used
10:13in your textbook i'm just going to
10:16put it over here on my
10:19ethereal board
10:22and i will go through it okay so demand
10:25is a relationship between
10:27uh the price of something and the
10:30quantity that people are
10:32willing and able to buy of that thing so
10:34let's use for example
10:36gasoline it's always important to
10:38remember when you draw a
10:40supply or demand graph that it's always
10:42the demand and or supply for
10:44something in particular i like to put
10:46the title of that thing
10:47the good or servicing question up here
10:50so that it's clear right
10:51if i just draw you a demand curve and i
10:53don't say what the demand is for then
10:55that that's meaningless is this the
10:56demand for apples for houses for
11:00luxury cruises for shoes what is the
11:03demand for
11:04okay so in this case it's the demand for
11:06gasoline
11:09now demand like supply can be expressed
11:11in two different ways
11:13as a graph and as a table let's start
11:16with the table
11:17both the table and the graph actually
11:19mean the exact same thing
11:21but they're just two different ways to
11:22visualize the same information
11:24so there's going to be price and there's
11:26going to be
11:27quantity demanded as i said
11:30this is going to be a table okay so
11:34uh there are different prices of
11:37gasoline
11:39that i'm going to put here in the in the
11:41price column
11:43okay so if the price of gasoline is say
11:45a dollar
11:53then in this particular case in this
11:55particular model
11:56the quantity demanded is going to be
11:58800.
12:02wait 800 what well the units don't
12:05particularly matter in this case but
12:07we're just going to say 800 million
12:09gallons
12:10okay so it's that's how much gasoline is
12:12demanded
12:14by everyone in the united states you
12:16know by the united states as a whole by
12:18consumers in the united states as a
12:19whole
12:20if the price is one dollar so what this
12:22line in the table is telling us
12:24what this row is telling us is that if
12:27this
12:28then that if the price is a dollar if
12:31the price of a gallon of gas is a dollar
12:33then the quantity demanded is going to
12:35be 800 million gallons
12:37if then that is what the table is saying
12:43next if the price is a dollar and 20
12:45cents
12:48then the quantity demanded will be
12:51700 million gallons if the price is a
12:54dollar and
12:5540 cents
12:58then the quantity demanded will be 600
13:01and so on and so forth
13:05and here you can see the full table now
13:08what's going on here you may have
13:11noticed
13:11that the numbers on the price column
13:15are increasing you know i'm ordering
13:18price
13:18in order from uh small to from low to
13:21high
13:22and the numbers on the quantity demand
13:24column are decreasing
13:26if the price is a dollar per gallon then
13:29the quantity demanded is 800 million
13:31gallons
13:32if the price is a dollar and 20 cents
13:33then the quantity demanded is
13:35lower 700 million gallons if the price
13:38goes up to 8.40
13:40then the quantity demanded is even lower
13:43still 600 million gallons and so on
13:47there's a there's an inverse
13:49relationship between price
13:50and quantity demanded as the price goes
13:52up the quantity demanded goes
13:54down what does that mean well it means
13:57the very very intuitive thing that if
13:58something gets more expensive in this
14:00case gas
14:01then people will demand will be willing
14:04and able to buy
14:05less of it that can be for all sorts of
14:07reasons some people may no longer be
14:09able to afford it at the higher price
14:10they're no longer
14:12able to buy so they don't demand it
14:16some people might be able to buy it but
14:18they decide not to because it's
14:20expensive you know
14:21in this case people might drive less
14:23because gas is more expensive so they
14:25buy
14:25less gas this is something that is
14:28sometimes called the law of demand
14:30as price goes up quantity demanded goes
14:33down there's an inverse relationship
14:35between price and quantity demanded
14:37the more expensive a thing is the less
14:39people buy it and likewise the other way
14:41around
14:42of course is also true the cheaper i
14:44think is the more
14:45people buy it or the more people are
14:47willing and able to
14:48buy it well
14:52maybe remember this is a model
14:56is it always true that as something gets
14:58more expensive
15:00uh the quantity demanded is reduced is
15:03it always true that
15:04something gets more expensive people are
15:05less willing and able to buy it
15:08not always actually it is usually
15:12true so this model is is you know a
15:14mostly accurate representation of
15:15reality
15:16but there are exceptions and we're going
15:18to be talking about them
15:19later on in the course there are such
15:20things as acid bubbles for example where
15:23something gets more expensive and people
15:25actually want to buy it more
15:27because they think it's a better
15:28investment because it's it's going up in
15:30price
15:30it's becoming more expensive
15:34so you can actually have situations
15:36where
15:37something getting more expensive
15:38actually causes people to want it more
15:40rather than less but we're not going to
15:43talk about that
15:45right now we're sticking to the ordinary
15:47examples of gas or groceries or other
15:50common everyday goods where the more
15:52expensive they are the less people
15:55want or can or are able to buy them
15:58now this is a table right and i said
16:01that the exact same information can
16:02represented
16:03can be presented in the form of a graph
16:05right so
16:06here's the graph let's start with the
16:10axes on the graph before i draw the
16:12actual graph itself the line
16:14let's look at these two axes right let's
16:17look at the coordinate system in which
16:18we're going to draw
16:19the graph so any graph
16:23of demand and or supply is going to have
16:27two axes where one represents price and
16:30the other one represents quantity
16:31quantity demanded or quantity supplied
16:33in our case here
16:34quantity demanded because
16:38a demand or supply graph is a graph of
16:41the relationship between price
16:43and quantity what happens to quantity as
16:46price goes up or as price
16:47goes down so on one axis in this case
16:51the vertical axis we have p
16:53representing price in dollars it's
16:54measured in dollars
16:56or specifically dollars per gallon
16:57because we're talking about gas
17:00on the other axis on the horizontal axis
17:02we have quantity in this case
17:03you know q represents quantity demanded
17:07how many millions of gallons of gas are
17:11people going to be
17:13able and willing to buy at each given
17:16price
17:18and the graph of demand is going to be
17:20basically a series of points
17:23given by these coordinates over here in
17:24the table a series of points connected
17:26by
17:27a line we could also do like a
17:29continuous curve where it's not just
17:32a few points but like an infinite number
17:34of points but we're not going to go into
17:35that in this course
17:37okay so starting with a price
17:41of one dollar right starting down here
17:44the price is one dollar
17:45uh what is the quantity demanded of uh
17:48how many gallons what's the quantity
17:50demanded of gas
17:52if the price is one dollar well it's um
17:55let me go like this the quantity
17:58demanded is um
18:04800 million gallons right that's what i
18:06said okay
18:08what if the uh the at the next price
18:10what's what's the next what's the
18:11quantity demanded at
18:121.2 dollars a gallon well it's 700.
18:19so that's that point over here okay uh
18:211.4
18:24that's 600.
18:27so it's like this point over here
18:31more or less
18:361.6 550.
18:441.8 500.
18:50here uh two
18:53460. well 460 isn't on the
18:56scale here but i have 450 so i'm just
18:58going to go
18:59a little bit above 450 it's going to be
19:01460
19:02and go up to 2 over here that works and
19:05then
19:06for 2.2 dollars the quantity demanded is
19:09420 so something like here
19:12420 there we go
19:17and now i'm going to erase the dotted
19:19lines
19:21because those are just the visual aid
19:23and here we have
19:25the dots that represent the same
19:27information
19:28that you find here on the table these
19:31points
19:32have the coordinates indicated in the
19:34table and this represents
19:36the demand curve for gasoline well
19:40not quite yet i have to unite them with
19:43a line
19:45and there we go there's the line now we
19:47have the demand curve for gasoline
19:50okay so as you can see
19:54it is downward sloping it's a diagonal
19:57line
19:58that goes like this across the graph
20:01uh that just indicates the fact that
20:03there's an inverse relationship between
20:05price and quantity as price goes down
20:08quantity goes
20:09up or the other way around as price goes
20:12up quantity goes down
20:15that's what the shape of the curve
20:17illustrates and you can also see that
20:19it's not a straight line
20:21sometimes for simplicity's sake uh
20:22demand or supply curves will be
20:24will be drawn like a straight line or
20:26like straight lines
20:28uh but that is highly unrealistic well
20:31this model
20:32is a simplification of reality anyway
20:34but if i were to make it a straight line
20:36that would be even
20:37more unrealistic so there's no reason to
20:40make it a straight line it's
20:41as you can see it's curved and sometimes
20:44it is called in fact a demand curve
20:46and the supply curve rather than a
20:47demand line and a supply line
20:51all right so that's demand that is how
20:54you draw it
20:55now let's talk about supply
20:58while leaving the demand graph here
21:02let's talk about supply
21:05so what is supply then well supply like
21:09demand
21:10is a relationship between a price and a
21:12quantity
21:13but in this case it's quantity supplied
21:16rather than quantity demanded
21:17where demand was the relationship
21:19between the price of a certain thing
21:21and how much of that thing what quantity
21:23of that thing
21:24people were were able and willing to buy
21:27at that price supply is likewise a
21:30relationship between the price of a
21:32thing
21:32and the quantity of that thing that
21:34people or firms
21:36corporations organizations somebody is
21:39able and willing to supply at that price
21:43in other words based on how much a thing
21:46sells for uh what is the quantity of
21:48that thing that
21:50um suppliers
21:53firms companies are going to offer
21:57for sale like with demand
22:00there is there are two aspects to supply
22:02being able and willing to
22:04offer something for sale to supply
22:06something
22:07obviously companies have to be willing
22:09to sell something and usually if it's a
22:11gas company then obviously they're
22:12willing to supply gas
22:15but they also have to be able and able
22:18in the case of supply means
22:19well first of all the thing in question
22:21must be something that you can
22:23produce or that you can find or that you
22:25can obtain that you can get somehow
22:27the the good or servicing question must
22:29be something that's
22:30obtainable something that can be
22:32produced otherwise well you can't
22:33surprise something that you can't that
22:35cannot be made
22:37so with demand being able you know the
22:40able part of demand
22:41meant that something only accounts is
22:43being demanded if people can afford to
22:44buy it
22:45with supply the able part of supply
22:47means that something obviously only
22:49counts as being supplied
22:50if a company or if somebody if some
22:52company some entity
22:54is in fact able to produce it some
22:56somebody has to be able to make it so
22:58that they can
22:58supply it that's the able part of supply
23:04okay so supply like demand can be
23:07represented both
23:08as a table and as a graph
23:12like with demand i'm going to use the
23:14exact same example as in the textbook
23:16and i will put it on the table here
23:18and then i'll put it on the graph here
23:21you'll notice that erased the demand
23:22part on the table
23:23but i have not erased it on the graph
23:26because i'm going to superimpose supply
23:29and demand on the same graph
23:31so that we can see equilibrium but first
23:34let's start with the table okay
23:36so for each price there will be a
23:39quantity supplied
23:41in other words depending on what the
23:42price of gas is depending on what they
23:44can sell
23:45gas for what what what depending on how
23:48much they can charge for it
23:50companies are going to supply more or
23:52less gas
23:54uh let's start with one dollar if gas is
23:56one dollar per gallon then
23:58in our example companies will supply 500
24:02million gallons of gas remember that's
24:03the unit millions of gallons
24:06if the price is 1.20 cents
24:09then in our example companies will
24:10supply 550
24:14million gallons if it's 1.4 the price
24:17then companies will supply 600 million
24:20gallons
24:20if the price is 1.6 then companies will
24:23supply 640
24:25and so on them there we are
24:29now you'll notice first of all the fact
24:32that
24:32as the price goes up as the price
24:34increases
24:36the quantity this time the quantity
24:38supplied also increases it goes from 500
24:40to 720.
24:42so in other words the relationship
24:44between price and quantity supplied
24:46is direct it's proportional it's not
24:48inverse liquid demand it's straight up
24:50the higher the price the greater the
24:52quantity supplied which of course again
24:54is intuitive
24:55the more you can charge for something
24:56the more likely you are to want to
24:59sell it as long as you are able to
25:02produce it or to obtain it remember you
25:04have to be able to
25:05get more gas in order to sell more gas
25:07but if you are able to get more gas
25:09then yeah you're going to want to sell
25:10more of it if you can charge
25:12more for it okay so as the price goes up
25:16the quantity supplied also
25:18goes up does this always happen
25:23like with demand not necessarily not
25:26always this is a model
25:27it represents a common ordinary everyday
25:30occurrence
25:31nevertheless you should not think of
25:33this even though it's called the law of
25:34supply
25:35you should not think of this as
25:36something that necessarily always
25:38happens in all circumstances for one
25:40thing companies may not be able
25:42to get more of a certain product after a
25:44certain point
25:45so they might they might not be able to
25:47supply more of it
25:49and there are also other reasons that
25:51can change the behavior of supply
25:53but for now we're sticking with the
25:54average everyday example
25:56the quantity supplied of gasoline goes
25:58up as the price goes up
26:00so that's the table let's put it on the
26:02graph and
26:03let us
26:10add it to the graph
26:13for demand
26:17supply and demand for gas
26:21let's start uh one dollar if the price
26:24is one dollar
26:27companies will supply 500 million
26:31gallons right that's what i said
26:33if the price is a dollar and 20 cents
26:35then companies will supply
26:38550 if the price is a dollar and 40
26:43cents
26:44then companies will supply oh 600 oh
26:46it's this thing it's the same
26:47um the same dot the same point that was
26:50also on the uh
26:52demand line i think that's going to be
26:54important later on
26:56then at 1.6
27:02companies also put i-640 640 is a little
27:05below
27:06650 so let's say it's over here
27:121.8 680
27:15and so on
27:20i'm going to erase the dotted lines that
27:23i drew for
27:24help and here we are here we are again
27:27with a series of points which i will
27:29connect
27:30with a line to give me the supply curve
27:34the supply curve it is upward sloping in
27:37this diagonal going that way
27:38because of the positive relationship
27:40between price and quantity supplied
27:42so there we go here we have supply and
27:45demand
27:46on the same graph this is also called a
27:50market graph
27:51this is the model of a market in this
27:53case the market for
27:54gasoline so what does this model tell us
27:58that we didn't already know before just
27:59by looking at the tables for demand and
28:01for supply individually
28:03well first of all notice that the two
28:05lines intersect they cross over at a
28:07certain point
28:08here this point where quantity is equal
28:12to 600
28:13million gallons of gas we call that the
28:16equilibrium point
28:18the point where supply and demand or the
28:21curves or the graphs or supply demand
28:23intersect this is therefore the
28:25equilibrium point
28:27this thing 600 in this case is called
28:29the equilibrium quantity
28:31i'm going to label it qe
28:34quantity at equilibrium equilibrium
28:37quantity
28:38and then we have an equilibrium price
28:43in our case of course is one dollar and
28:46forty cents
28:48i will call that p e for price at
28:51equilibrium
28:56so what's the what's the what's the deal
28:59with these two
29:00things the equilibrium quantity and the
29:02equilibrium price why are they important
29:04why is the 1.4
29:06more important than 1.8 why is 600 more
29:08important than 700
29:10well they're important because
29:13if this is in fact the uh the demand for
29:17gas that is if this is in fact an
29:19accurate representation of the demand
29:21for gas if this model is accurate for
29:23demand
29:24and if this other model is accurate for
29:25surprise this is indeed an accurate
29:27model of the
29:28supply of gas then the price and
29:31quantity that we will observe
29:32in the real world will be these two
29:35if this is the supply and this is the
29:38demand then this will be the price
29:40and this will be the quantity quantity
29:43demanded or quantity supplied
29:45yes the quantity at equilibrium
29:49is the quantity demanded of the thing in
29:52question in this case
29:53it's the quantity demanded of gas and it
29:55is also the quantity supplied of gas in
29:57fact
29:58that's how we find the equilibrium point
30:00the equilibrium point is the point at
30:02which quantity demanded is equal to
30:03quantity supplied that's
30:05that's its definition it is the point at
30:08which demand and supply are in balance
30:10equilibrium of course also means balance
30:13it's the balance point
30:14so like i said it's the point at which
30:16supply and demand are in balance
30:18what does that mean well basically it
30:20means that if we are at any other point
30:22if we're anywhere else on any of these
30:24lines
30:24we will be drawn towards
30:28the equilibrium point anywhere else
30:32will draw anywhere else that we start
30:35with
30:36market forces will drive us towards will
30:39draw us towards equilibrium
30:41that's the significance of it as long as
30:44everything stays the same of course as
30:45long as nothing changes as long as
30:47the conditions in the market remain the
30:51same
30:51we will be drawn towards this balance
30:54point towards this equilibrium point in
30:55other words
30:56the price if it starts up much higher or
30:59if it starts much lower
31:01will slowly go or perhaps fast quickly
31:04go towards 1.4 it will be drawn towards
31:07the equilibrium
31:08the quantity supplied if it starts out
31:12somewhere else will eventually go to 600
31:13the quantity demanded if it starts out
31:15somewhere else will eventually go to
31:17600. we will go we the market will get
31:21to equilibrium given enough time this
31:23can happen fast or
31:24or slow depending on which market we're
31:26talking about
31:29eventually we will get to this point
31:30that's the significance of that point
31:32the equilibrium point shows us where we
31:35will be it shows us what's actually
31:36going to happen
31:38not what should happen this is a model
31:41of
31:41this is a a positive model not a
31:44normative one
31:45this doesn't say anything about what the
31:46price of gas ideally should be
31:48or what quantity of gas ideally should
31:50be bought and sold but this model tells
31:52us that
31:52under these conditions that we just
31:54described
31:55600 million gallons is going to be the
31:57quantity of gas that will be bought and
31:59sold in the united states
32:01and 1.4 dollars is going to be the price
32:03per gallon of gas in the united states
32:05that is what this model says
32:07that is what's that is what a supply and
32:09demand model is supposed to do
32:11show us what's going to happen under
32:13certain conditions
32:17and with that we have reached the end of
32:20this video on supply and demand in
32:23equilibrium
32:24but in the next video we're going to
32:27return to this
32:28model and talk about what happens when
32:30conditions do not
32:31stay the same

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