Economics for Beginners - Demand, Supply and Price Elasticity

1. Demand vs Quantity Demanded: in this lecture of every disgusting meaning off demand on the difference between demand and quantity demanded what is demand? I have heard people saying that if you want to buy a good, then you have a demand for that. Good. If you also think the same, then I must tell you that there is more to it. Demand is not only what you want to buy, it is also about your ability to buy. For example, suppose you want to buy a Mercedes, but you cannot afford it. Can we say that you have our demand for Mercedes? No, it's not demand. It's only visual thinking. Also, the demand does not emerge if you have enough money to buy a Mercedes, but you are not willing to, so we can see demand for a good. Is the quantity off that good that you are willing on ableto by, Let's know, understand the difference between demand and quantity demanded price, please a major rule in deciding how much off a good level by, for example, say its price off. An ice cream scoop is $5. You consume two scoops are day. It is likely when the price off school prices to $10. You might reduce your consumption to one school birdie, and if the price off this group falls to $1 you might increase your consumption to three scoops per day. Here comes the distinction between quantity demanded on demand. Quantity demanded is the specific amount off quantity that you will purchase at a specific price off the good. So when price off a scoop is $5 your quantity demanded is to when price off a school prices toe $10 it is your quantity demanded that changes it decreases to one. On the other hand, demand is the entire relation that you see here between price and quantity demanded. It refers to different possible quantities off a commodity that you are ready to buy a different possible prices off that commodity. The demand changes when this relation between price and quantity demanded changes. There are many determinants that a faith see relation between price and quantity demanded, for example, income. What would happen to your demand for ice cream? If you lose your job, it would decrease right. Even if the price remains at $5 per scoop, you might reduce your consumption dove one scoop. Or maybe you will search to know ice cream at all. Like income. There are some other determinants is will which affects the relation between price and quantity demanded. We will talk about these determinants in the upcoming lectures. 2. Law of Demand and Demand Curve: after discussing the difference between demand on quantity, demanded, Let's know, understand the loft demand. The law off demand is a quite intuitive concept. It states that there is an inverse relationship between price off, a good and its quantity demanded. So this means when price off a good rises, the quantity demanded for that good, false and when price off a good fault. The quantity demanded for that. Good rises. This is something we all usually follow in our daily life. When the price off a product that we are consuming rises either vicar donor consumption off that good or we simply switch to some other good, which could be a substitute for that. Good. Let's take it this way. If you are someone who eats eight cups off ice cream in a month when the price off ice cream is $1 burke up, then you won't consumed the same number off cups. If the price rises to $2 work up, you might didn't consume only six cups per month. Or maybe you will switch to some other desert, which is called and yummy, just like ice cream is. But there is a caveat. Hill. What if your salary gets doubled at the same time when the price off ice cream rises. Say you got to know in the morning that the price off ice cream has risen. And in the evening, your boss hands over a note to you, which say's that you have been promoted on your salary. Husband doubled. Will, you know. Still, think off, reducing your consumption off ice cream from eight cups to six cups? No, right, because vibe, would you care for a $1 increase in the price off ice cream. Now your salary has just been doubled from $5000 to $10,000. So in this case, even with the rise in price off ice cream, your consumption off ice cream won't change just like income. There are many other factors that may affect your demand behavior. For example, if someday you notice that you have put on a little weight, then you might decide to consume less ice cream, even if the price off ice cream remains same. So basically there are many other factors that affect your buying decisions. Apart from the price off the good on a vile discussing the law off demand, we assume that all these factors are constant, so we assume that your income is constant. Your taste in preferences are constant on all the other factors that may affect your buying decisions are constant. So to summarize this, we can see that according to law, off demand, there is an inverse relationship between price off. A good on its quantity demanded keeping other factors constant. After discussing loft demand, let's now discuss demands. Qaduli. A demand schedule is simply a table that captures the relation between price on quantity demanded. For example, have a look at the falling table. This table shows the number off ice cream cups that you consume each month at different prices off ice cream. So if ice cream is free, you consume 10 cups permanent. If the price increases to $1 you consume eight cups moment on. As the price rises further, your consumption off ice cream keeps on decreasing, and when the price off a cup reaches $5 you stop consuming ice cream. This table here, relating the price on quantity demanded is called demands Keidel, Let me know, show you how to draw a demand cough. It is quite simple to drove on. Actually, demand curve is simply a graphic representation off demand. Skate deal In our demands, Qaduli recorded two variables. Price on quantity demanded. So let's draw to access first horizontal axis on vertical access to represent these two variables. Violating a demand curve, we take price on the vertical axis and quantity demanded on the horizontal axis. Now I can just replicate the combinations off price and quantity demanded that I recorded in the demand scared deal on this graph. These six points here represent those combinations, and now I can simply join these points to get our demand cough. That's it. This is how a demand girl looks like. Quite simple, right? I know that I have joined all the six points because there could be many possible price and quantity demanded combinations that I did not record in the demands could deal, So we need to account for those as well. As you can see, the demand cough here slopes downward. This is because a lower price increases the quantity demanded, keeping other factors constant in almost all the situations. You will encounter a downward sloping demand curve only, but there are some situations where you can have an upward sloping demand cough as well. This happens when the loft demand fails to hold. I will discuss more on this in my next lecture. 3. Exceptions to the Law of Demand: in this lecture, I will take you through some cases where the law off demand does not hold. These are called exceptions to the law off demand. Before discussing these exceptions, it is important to understand the difference between exceptions on assumptions. You should not confuse these two while discussing the law off demand. We assume that the factors that affect the quantity demanded off a good other than its own price remain constant. So other factors remaining constant is the assumption that we take by talking about the law off the mind. On the other hand, exception refers to those rare situations where lof demand does not hold, even when assumptions off the law are maintained. So if you start buying more off good eggs when the price off, good X rays is keeping other factors constant than this case would be an exception to the law. Off demand. Let's take some examples. Suppose that you want to buy sunglasses and you have shortlisted do off them. One is for $50 on This is an ordinary brand, which is not so famous on the other. One is for $300. This is off brand are, which is a luxury brand and say, You know in advance that there is not much off a difference between the quality off these two. So which one would you buy? Well, the answer to this question is not obvious. Julie Properties and glasses that cost $50. But I'm sure there are people who would want to buy the our brands and glasses for $300. And in fact, this is why the our brand is in business. Because there are a lot off people who buy our Branson glasses, even if they are expensive on this is because these people desire to buy luxury goods. They don't buy these sunglasses because it's quality is worth its price. But because these sunglasses are associated with a prominent Bryant brand, are it is their way of showing off and telling others that I am bridge. These type of goods, which are used as status symbols, are called Veblen goods. Some other examples off these type of goods are diamonds, antique paintings, luxury cars except drop. The law of demand does not hold when we are dealing with rebel and goods. This is because, in this case, the higher the price off a good, the higher the prestige value that consumer attach is to it. I left the price off the good falls. Then the prestige value off the good falls on the consumer stops buying it or say bye less off it. So if tomorrow the our brand reduces the price off its sunglasses from $300 to $150 then rich people will stop buying it and they will switch to some other expensive brand that they can buy to show their status. So this is the first exception to the law off demand. The second exception to loft demand is Giffen Goods. Giffen goods were named after Sir Robert Giffen. Giffen goods are type off inferior goods and the law off demand does not hold for them. So the quantity demanded off a different good increases with the increase in price and decreases with the decrease in price. It is important to know that all Giffen goods are inferior goods. But all inferior goods are not Giffen goods. If you're not familiar with the concept off inferior goods on normal goods, then for now just keep in mind that inferior goods are those goods which have an inverse relationship with income. So if your income rises, the new consume less off it. On the other hand, normal goods are those goods, which have a direct relationship with income. So if your income rises, you consume more off it. I will cover the concept off inferior goods on normal goods in much more detail. While discussing the shifts in the Mankoff coming back to our discussion on Giffen goods, let has taken example to understand this. Say there is a poor household on their monthly consumption off food. Green is 30 k Jeez, this is a minimum consumption that they need to survive. Let's assume that they can afford to spend only $200 on food grains, and they consume to goods Badra and Veit and out off these two goods. Badra is their staple food on this, much cheaper than its substitutes. So let's see. Currently they are consuming 20 cages off Badra on 10 cages off wheat, and the price off Badra is $5 per k g. On price of it is $10 per k g. So here their total monthly expenditure on food grains is exact. $200. Now, if the price off Badr arises from $5 to $6. They won't be able to consume the same bundle as it will now cost $220. So they will have toe alter their consumption pattern in such a way that they could get 30 cages off food grains in $200. To do this, they will have to reduce the consumption off beat by five cages and increase the consumption off Badra by five cages. This means after the vice in price off Badra, the household will start consuming 25 cages off Badra on five cages off wait to meet their minimum monthly consumption. Target on this will cost them exact $200 so the quantity demanded off backdrop will increase from 20 k Jeez to 25 k Jeez, despite the increase in its price on this violates still owe off demand. This happens because the household is eating Badra not because they like it, but because they cannot afford to buy vite because off its high price. When the price off budge rises by $1 they have no other option but to reduce the consumption off beat and increase the consumption off Badra because Batra is still cheaper than we'd. So this is all about the two main exceptions to the law off the mind Veblen goods on Giffen goods. There could be some of that exceptions as well. For example, if consumers expect a shortage off a particular good in the near future, then they would start buying more off it in the current period, even if the price off the good is rising. This is because they fear that they won't be able to get this good in future on. Even if they are able to, they might have to pay even more in the future. So this is all about the exceptions to the law off demand. Before I proceed further, it is important to know that the goods for which the law off demand does not hold have an upward sloping demand. Cough, as you can see here, in case often upward sloping demand cough the price and quantity demanded are positively related, so higher the price higher the quantity demanded for the rest. Off the course, I will assume that the law off demand does hold on. The demand curve is downward, sloping 4. Individual Demand and Market Demand: till now. We were talking about the demands K deal on the demand curve, often individual. But in order to find the equilibrium in the market and to analyze how markets work, we need to work with the demand girl off the entire market. So in this lecture, I will show you how to convert the individuals. Demand curves into the market demand cough. We know that a market has many consumers off. A good we can expect to have millions of consumers who eat ice cream. But just for the sake of simplicity, let us assume that there are only two consumers who eat ice cream John on Harry on. This is how their demands K deal looks like, as you can see here. Call them to shows. The quantity demanded by John are different. Prices and column three shows the quantity demanded by Harry at different prices. Given this information, it is quite simple. Toe obtain the market demand schedule. We just need to add the quantity off ice cream cups demanded by John on Harry are different prices. So, as you can see in column for the entire market, demands 21 caps off ice cream when the price off ice cream is $0. It decreases to 17 caps off ice cream when the price rises to $1 so on. Now that we have got the market demands qaduli, we can simply graph this to get the market demand Gulf. As you can see, I have drawn three. Demand comes here. The 1st 2 are for John and Harry respectively. And the third the monk off is the market demand golf. The market demand curve shows how the total quantity off a good varies as the price off the good varies while all the other factors that affect demand are held constant. So this is all about market demand. Ska duel on market demand Cove 5. Movements along a Demand Curve (Change in quantity demanded): In this lecture, we will discuss movements along our demand golf. Now you know that the quantity demanded off a good depends not only on its price but also on many other factors, like income off a consumer, tastes and preferences except tre. However, when we draw demand cough, we take only to access vertical axis on the horizontal axis. And this is because we can only draw up to two dimensions on a plane. So very present price on the vertical axis on quantity demanded on the horizontal axis. So there is no way to represent other factors that affect the quantity demanded on this graph so vile during the demand cough, we assume that all the other factors are constant movement. A longer demand curve happens when there is a change in a relieving variable that we have taken on these to access in the demand curve shown here when price often ice cream cup falls from $4 to $2. The quantity demanded increases from two units to six units as we have taken price often ice cream cup on the vertical axis. When the price decreases, the consumer moves down along the demand curve from point A to point B. This increasing quantity demanded off good do to decrease in price off that good is called extension off demand. Similarly, vin quantity demanded off the good falls you do increase in price off that good. It is called contraction off the mind. Graphically, it means a movement along the demand curve from point C two point the So this is all about the movements along the demand golf. 6. Shifts in Demand Curve (Change in Demand): in this lecture, we will talk about shifts in the Mankoff. I told you in my last lecture that movements along the demand curve happened when there is a change in a variable that is measured on either off the do access will a demand cough shift when there is a change in the variables that affect the quantity demanded but are not measured on either access. While discussing lof demand on demand curve, I assume that the factors that influence the demand for a good except the price off the good remains constant. When these other factors change the demands, K deal also changes and consequently there will be a change in demand covers. Well, in this lecture I will discuss these other factors with you and I will show you how these factors affect the demands can deal on demand cough. There are many factors that influence the demand behavior. I will discuss some important wants with you. The first factor is income off consumer. But before we talk about the effect off income off a consumer on his demand behavior letters first understand the distinction between normal goods on inferior goods. Normal goods are those goods whose demand increases with the rice in income off a consumer . On the other hand, inferior goods are those goods whose demand decreases with the rising income off a consumer . Let me give you an example so that you could understand this. Better meet John John has recently started working at an MNC, and it's quite happy with this job. And let's suppose that his monthly income is $1000 now because he's earning only $1000 a month. He wants to keep his transportation cost as low as possible so that he could save more. So given this situation, he starts using public transport to go to his office every day. Say he starts taking bus rides. Now, a quick question for you. If John gets a raise tomato supposed that his salary gets doubled, then do you think he will still stick to bus rights? No, Right. Maybe he will start taking cab ride Stine. Or maybe he will then by his own car, not a luxury one, but maybe are cheaper one on Am I right? This is quite a possibility. So in this example, Bust right is an inferior good on a cab, Right? Is a normal good as John will start taking less, Bus writes on more, KAB writes. As his income increases before I proceed further, there are some important points that you should keep in mind. If a good is an inferior good, it does not necessarily mean that it lacks quality. Inferiority relates to affordability off a good, for example, Imagine someone who cannot even afford to take bus rides say, because he's earning only $200 a month, so he prefers to walk to his workplace and does not use public transport. Now for this person, Bust right is a normal good, because if its income increases, he will then stop walking to his workplace and start taking bus rides. Under facing comprises photo, then bus rights will become an inferior good for him. As then he will start taking. KAB writes more often, and then, if he starts generating some more money than he will stop using cabs that often and well by his own car. So now cab right will become an inferior good, and card will become a normal good. So you see, how are consumer? Who likes a good when his income voice low may not like the same good when his income is high. Also know that no good is inferior at all times on for all. For a consumer with high income cab, right is an inferior good. But at the same time, Cab right is a normal good for a consumer. Would low income let us know continue our discussion on how the income off a consumer affect his demand behavior? Let's say we have a normal good good eggs and the falling our demands. Qaduli on demand cough for this good because good X is a normal good. When the income off a consumer increases, he will start buying more off good eggs even if the price off good X remains same on this will hold true for all the prices. So this means the quantity demanded will increase at all the price levels and we will get a new demand schedule and a new demand curve, as shown here. Know that in this case the entire relationship between price and quantity demanded has changed. So this is a case off changing demand, as the quantity demanded has increased at all the price levels. With the increase in income, the demand curve for good eggs has shifted to the right from DD two dd new and we call it increase in demand. Similarly, if the income off a consumer decreases, the demand curve for good, X will shift to the left as shown here on it is called decrease in demand. So this is how are changing income off a consumer effects his demand behavior for a normal good. Let's move to the case off inferior goods now, as discussed in the case, often inferior good. The demand for good decreases with the rise in income. So an increase in the income off a consumer will lead to a leftward shift in the demand curve and a decrease in the income village toe are right for shift in the demand cough. To summarize our discussion, we can see that any change that increases the quantity demanded at every price shaped steel demand curve to the right on this called an increase in demand and any change that reduces the quantity demanded at every price. Shift the demand curve to the left. On this call that decrease in the mind. Before I proceed further, you should be clear that when we talk about movements along the demand curve due to change in price off the good. We say that there is a change in quantity demanded. On the other hand, when we talk about shifts in demand cough due to a change in factors other than the price off the good we say that there is a change in the month. This is because when the other factors change the entire demand girl shifts In the next lecture, I will continue the discussion on shift in the Mankoff. 7. Shifts in Demand Curve (Continued): In my last lecture, I covered only one factor that influenced the demand behavior off a consumer income off consumer. In this lecture, I will cover other important factors. The second factor affecting demand. Behavior off a consumer is price. Off related goods. There are two types off related goods. Substitutes on compliments. Substitute goods are those goods, which can be substituted for each other, such as tea and coffee. So if one day your office cafeteria is out off coffee, then you can manage 30 as both are refreshing on hot drinks in case off such goods, increase in the price off one causes increase in demand for the other and decrease in the price often causes decrease in the demand for the other. For example, if the price off a cup off coffee increases from $4 to $6 then this will lead to an increase in demand. 40 as the consumers will shift from the consumption off coffee to consumption off key as they will now find T. Toby related Lee Cheaper know that there is no change in the price off D. It is the price off coffee that has increased from $4 to $6. So in this case, the demand curve 40 will shift to the right from DD two dd new. On the other hand, if the price off coffee decreases from $4 to $2 then the demand for tea will also decrease as the consumers allow shift from the consumption off T to consumption off coffee and consequently the demonic A 40 will shift to the left. There could be many other examples off substitute goods. For example, there are many music streaming service providers in India, though they are not close substitutes, as they all have some unique features, but they are still substitutes. So if tomorrow one off the service providers increases the monthly subscription rate, then the customers might consider moving toe some other service provider. Another example could be ice cream and other frozen desserts. So if the price off ice cream rises, you might consider switching to other frozen desserts. Or you might consider switching to some other brand off ice cream, which is in your budget. So this is how price off a substitute good may affect your demand behavior. Let us know move to the second type off related goods, complementary goods. Complementary goods are those goods, which are demanded. Together they complete the demand for each other. For example, pen and ink card in patrol, my DSLR camera and its lens, an iPhone and it's ups, except in case off complementary goods. Ah, fall in the price off. One causes increase in the demand for other, and a rise in the price often causes decrease in the demand for the other. For example, if the price off iPhone abs rice, then the demand for iPhones may fall as the consumers might consider switching to android devices. In that case, or say, if price off the S a little insists rice, then the demand for the SLR cameras may fall on. Similarly, if the price off gasoline prices, then the demand for cars will fall. Or maybe people won't stop buying cars altogether. But they will surely such to fuel efficient cars, so the demand for cars with low mileage will fall. So this is how price off complementary goods may affect your demand behavior. Another important factor that may cost the quantity demanded to change at all the price levels is expectations off consumers. So if consumers are expecting the price off a good Toby lower in the future, then they will decrease the demand in the current period in the anticipation off, getting the good at a cheaper rate in the future. For example, imagine you hear that there is going to be a sale in October in which all the e commerce companies off fashion and electron ICS will offer up to 70% discount on all the products Well. In that case, sales off these products will go down in September. East and preferences are also an important demand shifter. You might have noticed that as fashion changes, the demand for old fashioned goods declined very sharply, even if the price off those goods remains same. I remember when I was a kid bellbottoms for quite popular, and I don't remember if I have seen and even wearing bell bottoms in the last few years. Even if you could find one in some store, she will be less likely to buy it as they are not in fashion now. Another example could be climate. What happens to your demand for ice cream in summers? It increases right? Even at the same price. There could be many other factors that may influence the days in preferences off a consumer . For example, advertise spends new inventions except Trump. In addition to the preceding factors, market demand depends on the number off biases fell. For example, if you have a cafe in Delhi University area, then you will have more demand and those higher sales during this semester time violence, summers say. In June and July, when the colleges are closed, then the demand for your product feel decrees, because then the number off buyers in that area will be less Jemele. To think off this at the state or country level, think about population demographics. Imagine a state or a country with increasing both raid. In that case, we can expect an increase in the demand for baby products in the state. Our country. With this, we are done with the five main factors that leads to shifts in the Monakhov. Now let's have a look at the flow chart. Summarizing movements on shift in the Mankoff movement along the demand curve leads to change in quantity demanded when there is an increasing quantity demanded do to decrease in own price off the commodity. We call it extension off demand. And when there is a decreasing quantity demanded due to increase in own price off the commodity, we call it contraction off demand. On the other hand, shifting demand curve leads to changes in demand. It could be either decreasing demand in which to demand cough shift to the left or increasing demand in which the demand curve shifts to the right. These are caused by changing factors other than own price off the commodity. So this is all for this lecture. 8. Supply and Quantity Supplied: after discussing the demand side off the market, let us now examine this supply side off the market. It would be relatively simple for you to understand the supply side off the market as you are already equipped with basic concepts. Now, little start for discussing the difference between supply on quantity supplied. If you ask a producer how much quantity off a commodity is he willing to sell, his obvious answer would be depends on price. Are different prices. Our producer would be willing to sell different quantities off a commodity. It is getting a good price for this product. He would like to sell more, and if he's not getting a good price, he would like to sell less, just like we discussed while examining the demand side off the market, Quantity supplied refers to a specific quantity off a commodity. But producers are ready to sell at a specific price off the commodity. So when the price off the good changes, it is the quantity supplied that changes. On the other hand, supply is the entire relation between price and quantity supplied. It refers to various quantities off a commodity that the producers are willing on able to sell at different possible prices off the commodity. Nor that even when we talk about supply, it's not only about willingness to sell, it is also about ability to sell. Supply would not emerge if our producer is willing to sell 10,000 units at a certain price , but he has the ability to produce only 5000 units. So this is all for this lecture. In next lecture, we will discuss low off supply supplies. Qaduli on supply golf. 9. Law of Supply, Supply Schedule and Supply Curve: we will cover three things in this lecture. Lof supply supplies Qaduli on Supply Cove. Love Supply states that there is a positive relation between own price off a commodity and its quantity supplied. So this means producers will supply more goods at a higher price and less goods at a lower price. When we talk about supply, it's not only the price off the good that determines the quantity supplied by sellers. There are some other factors, as well, that sellers take into account while deciding how much off a good to supply. For example, cost of production. Imagine a seller producing three goods. Good a good be on good see. And let's assume that the market price off all these goods is same that is $3 per unit, and the cost of producing these goods is also same. Say, $1.5 by unit. Now, if cost off, producing good be rises from $1.5 toe, $2.5. Do you think the seller will keep on supplying the same amount of good B? No, right, because it's not voted for him to devote the same amount off time energy on other inputs to produce Good be now So he will reduce the production of good B and start using his inputs somewhere else where he could get better returns. So vile discussing lof supply. We assume all the other factors that may affect the quantities supplied by a seller to be constant. After discussing lof supply, let us know, discuss supply schedule on supply cough just like demands. Qaduli. A supply schedule is a table showing different quantities supplied by a firm at different prices. Off a good, for example, have a look at the falling table. It shows that if the price off good is $1 than the form will supply 10 units off. Good. If the price of good increases to $2 it will supply 20 units of good and so on. Moving on to supply curve. Now, a supply curve is just a graphic representation off the supply schedule, and this is how it looks like. It carries the same information on assumptions that that supplies get builders here. I have taken price on the vertical axis on quantity supplied on the horizontal axis. I know that this supply cough is an individual supply cough as we are talking about only one. From here, we can derive the market supply cough just like with the life the market demand cough. Let's assume that there are only two firms in the market that supplies good X, and these are their supplies. Get deals. We can drive the market supplies qaduli by adding the quantity supplied by all these firms at different prices. So, as you can see in column for the entire market supplies 10 units off good eggs. When the price is $1 per unit, the quantity supplied increases to 21 units when the price sizes to $2 and the quantity supplied increases further to 30 units. When the price off the good rises to $3 so on. Notice that when the price off good X is $2 or below, then the quantity supplied by Formby is zero. One reason for this could be the inefficiency off, Formby say, because it has some old technology to produce good eggs, which keeps its cost of production high. So it's profitable for Formby to enter the market on Lee when the price off good eggs is $3 or more. So if you look from a market perspective than this. Entry and exit off firms also explains vital see quantity supplied increases when there is an increase in price. Okay, so now, as we have got our market supply scared ool, we can simply graft this to get the market supply cough. And this is how it looks like a market supply Cough shows the total amount of quantities supplied at different prices. So this is all about lof supply supplies. Qaduli on supply cough. 10. Movements along a Supply Curve (Change in Quantity Supplied): In this lecture, we will discuss movements along a supply cove, just like I told you, By discussing the movements along the demand curve the movements along a supply curve happens when there is a change in own price off the commodity. On other determinants, off supply remained constant in this, a black off shown here when price increases from $2 to $4. The quantity supplied increases from 20 units to 40 units, and this leads to a movement along the supply curve from point A to point B. This increasing quantity supplied off good due to increase in price off that good is filmed as extension off supplies. Similarly, when quantities supplied off the good falls due to decrease in price off that good, it is called contraction off supply. Graphically, it means a movement along the supply curve from Point C to point D. In the next lecture of evil, discuss shift in supply, cough 11. Shifts in Supply Curve (Change in Supply): in this lecture, we will talk about shifts in Supply Cove. As I told you earlier, a shift in a cough happens when there is a change in the variables that are not measured on either access. Apart from the own price off the good, there could be many other factors that may influence the quantity off the goods supplied by the producer. If the factor leads to an increase in the quantity supplied at all the price levels than the supply cough shifts to the right. And if the factor leads to a decrease in the quantity supplied at all the price levels, then the supply golf shifts to the left, let's know, discuss some off the important factors that may influence the quantities supplied by a producer. And let's talk about the producer off gaming console. The first factor is input prices. What would happen if the cost off plastic gets double tomorrow? Well, I'm sure it's not difficult to guess. Since plastic is a major component off the console, producing consoles will become less profit table at the existing prices. If the price off plastic rises as a result, the producer will supply less off it on the supply cough off gaming consoles will shift to the left. On the other hand, if the price off plastic faults, then producing consoles will become more profitable at the existing price, so the producer will supply more off it on this will lead to our right foot shift in supply golf. The second factor is expectations off the producer. If the producer is expecting to have a higher demand off its gaming consoles over the holiday season, then he will start producing more gaming consoles on this will lead to our rightward shift in supply cough. In addition to the preceding factors which influence the behavior off individual producers , Market supply depends on the number of producers as well. So if, say, five more producers introduced their own new gaming consoles, then the market supply cough will shift to the right. Apart from these, there could be many other factors that may affect the quantity supplied by a producer like technology accident subsidies except Trump. So this is all about the behavior off sellers. In the next section, we will start discussing markets equilibrium 12. Market Equilibrium: in the last two sections. We analyzed supply and demand separately in this section, we will combine them to see how they determine the price and quantity off a good sold in a market. Let us first understand the meaning off equilibrium on equilibrium. Price. By definition, equilibrium is a situation in which various forces are in balance and once these forces come into balance, there is no tendency to change further. In our case, we have to opposite forces determining the price off good demand and supply those who demand the goods that is, the consumers would like to pay as lower price as possible and those who supply goods, that is, the producers would like to charge as high a price as possible. So consumers and producers have opposite interest. So far as the market price off, the good is concerned. Though consumers and producers have opposite interest, actual buying and selling can take place only vendee toe agree toe a common price under common quantity. At this price, these common price and common quantity are nothing but equilibrium. Price on equilibrium, quantity, so equilibrium price is defined as the price at 50 quantity off the good that consumers are willing and able to buy exactly balances the quantity that producers are willing and able to sell in. Brief. It is a price at which demand and supply off a good are the same. Have a look at this figure. This figure shows the market supply cough on market demand. Curve together. Notice that there is one point at which supply and demand curves intersect. So this point is the markets equilibrium on equilibrium. Price is $3 per unit on equilibrium. Quantity is six units. So this is all for this lecture. In the next lecture we will see via equilibrium. Price is determined when demand equals supply. 13. Why Equilibrium Price is determined when demand equals supply?: in this lecture of evil, discuss vice the point where demand and supply intersect. It's the equilibrium point that is vice point e The Equilibrium point. Let's see. As you can see in this figure, $3 is the equilibrium price. But why? By not $2 or $5 to explain this latest Icka price other than the equilibrium price, say, $2 per unit, this is a price below the equilibrium price. At this price, quantity off the good demanded, exceeds the quantity supplied. As we can see from this figure, the quantity demanded at this price is eight units and the quantity supplied is four units . So this means there is a shortage off the good. A shortage is sometimes called a situation off existing Mondays will, with too many buyers choosing too few goods. The seller's off the good can respond to the shortage by raising their prices without losing sales. On this price, increase causes the quantity demanded toe fall and quantities supplied to rice. These changes represent movements along the supply and demand cough as indicated by the arrows and difficult. And these changes continue. That is, price continues to rise until the market reaches the equilibrium. Moving on to a second case, let us now assume that the market prices $4. This is a price above the equilibrium price. At this price, the quantity off the goods supplied exceeds the quantity demanded. As you can see here at a price off $4 the quantity supplied is eight units on. The quantity demanded is four units. So there is a surplus off. The good are so places sometimes called a situation off excess supplies will. In this case, suppliers are not able to sell. All they want are the going price, so they start offering lower prices to the buyers to clear their stock. Falling prices in turn, increased the quantity demanded and decrease the quantity supplied, and the price stops falling when it reduced the equilibrium price and the demand equals supply of once again. So this is why the equilibrium price is determined when demand equals supply. As at all the other points, these two forces off demand and supply are not in balance. 14. 3 steps to analyze changes in equilibrium: in this lecture, we're going to learn how to analyze changes in equilibrium. We saw that the market equilibrium is determined by the intersection off demand and supply cough, which in turn gives us the equilibrium price on equilibrium quantity. So that means if some event causes a shift in these girls, then there will be a change in the equilibrium. There are three steps that we're going to follow to analyze how some event affects the equilibrium in a market. The step fun is to decide whether the event shifts iSuppli cough the demand, cough our boot. So that's the step one. The step number two is to decide whether the curve shifts to the right or to the left, and the third step is to use this supply and demand diagram to see how the shift changes the equilibrium price on quantity in the upcoming ledgers. I values this recipe to show you how various events affect the market. 15. Effect of Shift in Demand and Shift in Supply on Market Equilibrium: In this lecture, we will discuss T effect off shift in demand and supply curves on market equilibrium. Let's take it one by one. So let's first discuss T effect off shift in demand on market equilibrium. And then we will have a look at how are market equilibrium changes due to a shift in supply . Let us consider the market for drink ums. So desk of shows The demand for chewing gums on this curve shows the supply off drink, Um, and to start with the equilibrium prices, even on the equilibrium, quantity is Cuban. Now let's suppose that the price off Brett men's doubles. So how is this event going toe? Affect the market for chewing gum? Let's see. Let's follow our three steps to answer this question. First, we need to see whether this event shift see Supply Cough or the Mankoff as Braitman on drink. Dems are substitute goods. 70 Price off Braitman goes up by so much. Consumers will start demanding more drink terms and less breath mint, so this means increasing price off Brit meant a face to demand for chewing gum. The supply curve is unchanged because increasing price off the Brit Mint does not directly affect the producers off drink. Um, the second step is to see whether the demand curve shifts to the right or to the left will . Because increasing price off Braitman makes people switch from breath mints to drink them. The demand curve for chewing gum shifts to the right, so, as shown in the figure here, the demand curve shifts from DD two dd New. Moving on to our third step, let's have a look at demand and supply diagram to see the effect on equilibrium at the old price. P even. There is now an exist demand for tring gums, and this shortage induces firms to raise the price. As you can see in the figure, the increasing demand resisted equilibrium price from even topi toe on the equilibrium quantity from Cuban took you to. So the increase in price off Braitman increases the price and quantity off drink ums sold before we proceed further know that this change in equilibrium is not answer than change. The change in price takes time before it reaches a new equilibrium. Now let's move to our second example once again continued. The market for drink comes on this time supposed at the price off liquid sugar doubles. How does this event affect the market for tring gums? Once again, let follower three steps to answer this question. As liquid sugar is an input in producing tring, um, the rising price off liquid sugar resisted costs off producing kingdoms. Consequently, this reduces the quantity off drink terms that the producers produce and sell at any given price. So this means the rise in the price off liquid sugar affects the supply curve off drink. Um, it does not affect the demand cough because the higher cost off inputs doesn't automatically affect the quantity off drink terms that teenagers wish to buy. Let's move to our second step to determine the direction off shift off supply cough. In this case, this supply cough shifts to the left because at every price, the total amount that the producers are willing and able to sell is reduced as shown in the figure the supply cough shift backwards from SS to assess. New. After looking at this supply and demand diagram, we can see that there is now an excess demand for tring Dems at the existing price Beaven. This causes producers to raise the price off the drink terms. Consequently, as you can see in the figure the leftward shift in the supply cough resisted equilibrium Price from Beavan two Pito and Lord see equilibrium quantity from Cuban took you to so as a result off increasing price off liquid sugar The price off drink um rises and the quantity off chewing gum sold falls. So that's it. This is how you analyzed the effect off shift in demand or supply or equilibrium price on equilibrium quantity. 16. Effect of Simultaneous shift in Demand and Supply on Market Equilibrium: In this lecture, we will discuss. How does the equilibrium change when there is a simultaneous shift in demand on supply? In the last lecture we discussed, how does the increase in price off Brett mints on increasing price off liquid sugar? Ah, fixed equilibrium off drinker market. But we analyzed these cases separately. Now let's suppose that both off these events happen simultaneously. Once again, let's fall over three steps to see how do these events affect the market for drink comes. We know that as both events are happening at the same time, so in this case, both the girls must shift the increase in the price. Off Breath mints affected the Markoff by altering the amount off drink terms that teenagers would like to buy at any given price on the increase in price. Off liquid sugar alters the supply curve off drink dems because it changes the amount off drink ums that producers want to sell at any given price. We also know that the demand cough shifts to the right on the supply cough shifts to the left. We discussed all this in the last lecture, so I'm hoping it's all clear to allow now What about the equilibrium? Price on equilibrium Quantity. Do they increase? Decrease? What happens to them? Let's see. Actually, in this case, there could be two possible outcomes depending on the related size. Off the demand and supply shift in the falling figure, the demand increases substantially. Vice supply falls just a little. The demand cough shifts to the right from day, even though d do and the supply curve shift to the left from s one to s to. And this is a new equilibrium. As you can see in this case, both equilibrium price on equilibrium, quantity increases the equilibrium Price increases from P one to p toe on equilibrium quantity increases from Cuban Tokyu toe. So this was the first possible outcome. Let's move to our second possible outcome Here. Supply falls substantially via demand rises Just a little. The SS cough shifts to the left from s fun toe s to on demand cough shifts to the right from divan, toe de to on. This is the new equilibrium that we get. As you can see In this case, the equilibrium price rises but the equilibrium quantity falls. Now I know that the equilibrium price rises irrespective off the outcome. But what about the equilibrium Quantity? Well, the impact on equilibrium quantity is ambiguous on this is because the equilibrium quantity rises in the first case and false in this second case. So there is some ambiguity about the direction off change when it comes to equilibrium quantity. So far in this lecture, we have covered the case. When there is an increase in demand and a decrease in supply and the result that we have got to start the equilibrium prices shortly go up. But the effect on equilibrium quantity is ambiguous. In total, there could be nine such cases off simultaneous shifting curves, and the falling table shows the final result off all these cases. To avoid any confusion, let me show you how to read this table. This cell here shows what happens to equilibrium, price on equilibrium, quantity when there is a decrease in demand on increase in supply. Similarly, this says shows what happens to equilibrium price on equilibrium, quantity when there is an increasing demand on decreasing supply. We have already covered this case, so you might try the remaining eight cases and Jake your results from here If you get stuck anywhere or feel confused at any point in time. Then please feel free to post your question. And I would be happy to help. So this is all for this lecture. 17. Elasticity - Measure of Responsiveness: in this lecture, I will introduce you to the concept off elasticity. We know that the demand and supply off a good depends not only on its price but also in the price off related goods, income off a consumer and so on. We also know that when price often ice cream rises, its quantity demanded is expected to fall. But this statement is a qualitative statement. It does not tell us. Will the demand for ice cream go down by a little or a lot? So if I ask you that, if the price increases where one person, how much will the quantity demanded? Change on How much will it change if income prices by 20% the theories off demand and supply do not answer these questions. To answer these, we use elasticity. Ease elasticity is a general concept that can be used to quantify the response involved. Variable went another variable changes. It measures the sensitivity often variable to another. Elasticity can take a number off different forms, depending on what cause and effect relationship you are trying to measure. For example, price elasticity off demand major see responsiveness off demand to changes in price and price elasticity of supply major see responsiveness off supply to changes in price. I know that the concept off elasticity is not limited to understand their responses to changes in price. It can also be used to understand their responses to change in income price, off related goods, etcetera in the next lecture of it will discuss price elasticity off the mind. 18. Price Elasticity of Demand and it's determinants: in this lecture of evil discussed e price elasticity off demand Asper loft demand. Ah, fall in the price off a good raises its quantity demanded keeping other factors constant. Know that this tells us only the direction off change, not the size off the change. We still don't know by how much the quantity demanded rises when the price off a good falls this is we're price elasticity off demand comes in the price Elasticity off demand measures how much the quantity demanded response to watch engine price. We call the demand for a good to be elastic if the quantity demanded response substantially to changes in the price and in elastic if the quantity demanded response only slightly to changes in the price. But what did immensity price elasticity off demand. How can we know how guilty consumers respond to an increase in price off, say oranges. If we know the demand curve for oranges, then we can use mathematical formulas to get a specific value for price elasticity of demand. But it is not always feasible to have knowledge of demand cough. So it is helpful to have some general rules off term about what influences price elasticity of demand. The first factor is availability off close substitutes. If a good has more close substitutes available than it is easier for consumers to switch from that good toe. Other goods if the price of good rises, These type off goods tend to have more elastic demand, as compared to goods with less or no substitutes available. For example, tea and coffee can be easily substituted for each other, so even a small increase in the price off T, assuming the price off coffee is constant, will caustic quantity off. He sold to fall by a large amount. On the other hand, the demand for eggs is likely to be less elastic, as compared to demand 40 as there is no close substitute available for eggs in the market. The second factor is nature off. Good good stat are considered. Necessities have less elastic demand, as compared to the goods that are considered as luxuries. It is because it is difficult to give up consumption off unnecessary goodbye a large amount when its price goes high, for example, so it, on the other hand, if the good is a luxury, then an individual has more flexibility to change his purchasing habits in response to a price change. The proportion off income that a consumer spends on a good also influences the price elasticity of demand. If a consumer spends a very small portion office income on a good, then he will pay little attention to its place. For example, if you pick up a pack off men's once in a vial, you might not notice an increase in price from 30 cents to 40 cents. Yet this is a 33% increase in the price. So in such cases, the demand is likely to be less elastic. The fourth factor is time period demand for a good. It's more elastic over longer time periods. This is because in the long run, our consumer can change his consumption habits more conveniently than in the short run. For example, if price off gasoline prices, you won't be able to reduce your consumption off gasoline by a large amount immediately. But over the years, human reduce your demand substantially as you may buy a new fuel efficient car or such to public transportation, or you may also move closer to very work. It is important to know that these rules are returning terms off related elasticity and in elasticity. So if we're given to goods and say both have elastic demand, then we can use these rules to determine which good is more elastic, on which goddess less elastic. These rules do not tell us whether goodness, elastic or inelastic in an absolute sense. Now, Dick Ocean is how to compute price elasticity of demand in absolute sense. There are mainly two methods. Off measurement off price elasticity, off demand percent, a change method and geometric method. In addition to these two methods, I will also explain you the relationship between price, elasticity of demand and total revenue, which can also be used to estimate price elasticity. And we will also cover the midpoint method, which is just a slight variation off person day change method. In the next lecture, we will discuss the person to change method 19. How to compute price elasticity of demand?: In this lecture, we will study the first method to compute price elasticity off demand according to percentage change method. Price elasticity off demand is equal to percent. A change in quantity demanded, divided by a person to change in price. This will tell us the percentage change in quantity demanded for a good falling of one person. Change in the price off that good. The price elasticity off demand is usually a negative number. This is because we usually have a negative relationship between price and quantity. Demanded latest Chicken example. To understand how this works. Suppose the price off ice cream is $4 per scoop, and the quantity demanded is one scoop. When the price off ice cream falls to $2 for scoop, the quantity demanded increased this to four scoops. What is the price elasticity of demand in this case? To calculate the price elasticity, we need to know person date changes. Let us begin by calculating the percentage change in quantity demanded. The quantity demanded increases from one scoop toe four scoops when price falls from $4 to $2. So the change in quantity demanded is equal to three scoops to convert this change into a person to change, we may use the following formula here. I have divided the change in quantity demanded by the initial level of quantity on this whole expression multiplied by 100 Putting the values in this formula we get person T changing quantity demanded equal to 300%. So this means increasing quantity demanded from one scoop toe. Four scoops is a 300% increase. We can calculate the percentage change in price in a similar way here. The change in price is a negative number. It is minus $2. This is because the change is a decrease in price. Putting the values in the formula we get person t change in price is equal toe minus 50%. So this means decreasing the price from $4 to $2 is a 50% decline. Now, as we have got person to change in quantity demanded on percentage change in price, we can simply divide these two to get price elasticity of demand. So the price elasticity of demand is minus six. This minus six means that when price falls by one person, D quantity demanded increases by 6% This means that the demand is elastic as the quantity demanded has changed substantially in response to changing price. On the other hand, if we had price elasticity off demand equal to minus 0.5, then of one person fall in price would have caused Onley 0.5% increase in quantity demanded . This implies that the demand is in elastic, as the quantity demanded has changed only slightly in response to change in price. Now let's have a look at the rules that determine whether the quantity demanded has changed substantially or slightly in response to what end in price. I have taken the absolute values off price elasticity here and ignored the negative sign as it's only significance is to show an inverse relationship between price and quantity demanded. Our demand for a good is said to be elastic if the absolute value off price elasticity of demand is greater than one. In other words, our demand for a good ist elastic it's person to changing, quantity demanded, is greater than person to change in price. So if price elasticity for a good it's minus two, then did. Demand for this good is elastic. I demand for a good is said to be in elastic if the absolute value off price elasticity is less than one. In this case, the person T changing quantity demanded is less than a percentage change in price. So if price elasticity for a good is minus 0.5 than it is in elastic. But what happens when the absolute value off price elasticity off demand is equal to one Well, these type of goods are said to have unitary elastic demand. In this case, percentage change in quantity demanded is equal toe person to change in price. So this is all about the percentage change method in the next Lecture of Evil discussed the problems with percent change method. 20. Why isn't slope a measure of responsiveness?: have you thought that? Why don't we use slope of the measure of responsiveness? What's he need to do all those calculations to find price elasticity when we can simply see the responsiveness of quantity demanded to price changes using slope? Well, this is because this group off a demand curve may, in a rough way reveal the responsiveness off the quantity demanded to changes in price. But it can be quite misleading. Let's take an example to understand this indie deal savior. Given a demand schedule off John. As shown here, this shows that if price off meat is $1 per pound, John buys £10 off me permanent at a price off $2. He buys £8 off meat permit and so on. Using this demand schedule, we can draw demand curve for John on. This is how it looks like. Now, if we calculated no medical value of slope, it is equal to minus half. This is the case when we have measured the quantity demanded in poems. If we now relate, the Johns demands qaduli measuring the quantity demanded in ounces. This is how it looks like and if you know, calculate the numerical value of slope, we get a very different number. This Lopez changed to minus one, divided by 32. So even though the demand girls here are representing the exact same behavior, we have got to different values off slow. This problem arises because the numerical value of slope depends on the units used to measure the variables. We can correct this problem by converting the changes in price and quantity to percentages , and this is exactly what we do while calculating price elasticity off the mound. So this is why elasticity is a better measure of responsiveness, as it does not change with the unit off measurement. Despite these differences, slope on elasticity are not entirely unrelated concepts, as shown in the previous lecture price elasticity off demand has an inverse relationship with the slope. I will discuss more on sloping elasticity as you proceed further in the next Lecture of Evil discussed the second method to estimate price elasticity of demand 21. Total Revenue and Price Elasticity of Demand: in this lecture of every discussed, the relationship between price elasticity of demand on total revenue. We can estimate the degree off price elasticity of demand, depending on the change in total revenue. Wendy Price off a good changes. Let's see, how does this concept works? We know that total revenue is equal to price multiplied by quantity. Generally speaking, when price increases, the quantity demanded declines, and when price decreases, the quantity demanded increases. So the pricing quantity demanded. Move in opposite directions. Let me give you a statement to analyze the total revenue increases with the increase in price off a good Do you agree? Well, you should not agree with the statement because total revenue is the product off price and quantity. Whether total revenue increases or decreases in response to a price increase depends on which is bigger the percentage increase in price or the percentage decrease in quantity demanded. If the person dish decrease in quantity demanded is created and the percentage increase in price, then total revenue will fall. This happens when demand is elastic. In this case, the decline in revenue from selling fewer units more than offsets the extra revenue from selling units at a higher price. On the other hand, if percentage decreasing quantity demanded a smaller than the percentage increase in price , then total revenue will rise. This happens when demand is in elastic. In this case, the extra revenue from selling units at a higher price more than offsets the decline in the renew from selling fewer units. And if the person taste decreasing, quantity demanded is equal to the percentage increase in price, then total revenue does not change. This happens when demand is unit re elastic. Similarly, we can also analyze the situation when there is a fall in price. When price falls, the quantity demanded increases, so if the demand is elastic, then the total revenue will increase. As in this case, the person paging please in quantity demanded will be greater than the percentage decrease in price. On the other hand, if the demand is in elastic than the total revenue will fall, and if the demand is unitary last stick, the total revenue will not change the falling table summarises. The results know that if the demand is elastic, the price on total revenue are inversely related, been price increases, total revenue decreases and when price decreases, total revenue increases. If the demand is in elastic, then the price on total revenue are positively related. And if the demand this unit re elastic, then no matter whether price increases or decreases, the total revenue remains constant. So all that said, let me ask you one more caution. See, I have a foam and I know that the demand for my good is elastic. And due to some market research, I know it in advance that if I decrease the price than my total revenue will surely race. Given this situation, what do you suggest in this case? Shall I go ahead and reduce the price off my product? The answer to this caution is not obviously, yes, there is a catch here if I am a foam than my goal is not to maximize revenue. But my profit on maximizing profit is not usually the same thing as maximizing revenue. If I'm decreasing the price off my product, then I'll have to think about the cost of producing The extra protests fell, and only then I can determine whether a price decrease is a good idea or not. On the other hand, if my product has an inelastic demand. And if due to some market research, I know that an increase in price will increase my total revenue, then this sounds like a good idea. This is because if I increase the price, my total cost will decrease. As now, I'll have to produce less output. So in this case, the increase in price is not only justified from a revenue perspective, but also from a profit perspective. So this is all about the relationship between total revenue and price elasticity. 22. Constant Elasticity Demand Curves: So far, we have learned that a straight line downward sloping demand curve shows different elasticity at its different points. However, there are three distinct situations when elasticity off demand is same at all points. The first situation is when the demand curve is ah horizontal straight line. This type of demand is called perfectly elastic. Demand in this situation, even a very small change in price, leads to huge changes in quantity demanded as shown in the figure. If price is slightly increased from $4 the quantity demanded falls to zero. However, at the prevailing price of $4 quantity maybe 10 2030 or any amount off the commodity as shown here. In such a situation, elasticity off demand is in finite at all. Points off the demand cough. The sick institution is when we have ah vertical straight line demand cough. This type of demand is called perfectly inelastic demand. In this situation, changing price causes no change in the quantity demanded, even if it is a substantial change in price as shown here when prices $2 quantity demanded is four units when price rises to $4 or $6. The quantity demanded remains constant at four units. Therefore, the elasticity of demand is zero. Here, the constitution is when the percentage change in quantity demanded is always equal to percent change in price. This happens when the demand curve is a rectangular hyper bola. In this case, the elasticity of demand is equal to one at all points off the demand. Golf. This type of demand is called unitary elastic demand. It is important to know that the demand curve that I've drawn here is a rectangular hyper bola. This is because a rectangular hyper Bullough has a special property. The 80 off all rectangles formed under a rectangular hyper bulla is seem. For example, if you take a point, a rectangle b o que e a is formed at this point. Similarly, at point B, another tangle Beaven Oh, Cuban B is formed. So on every point off the girls, a new rectangle is formed and in a rectangular hyper bola, all such rectangles have the same area. But what is the significance off the 80 off triangle? What does it tell us? No, that at point A. B. O. Q. A is equal to Opie multiplied by O que ville o p is equal to price and o que is equal to quantity demanded. And we know that price multiplied by quantity is equal to total revenue. Since the 80 off the rectangles ISS seem this implies are the total revenue remains constant even after changing price off the commodity. And from our previous lecture. We know that in such a case, price elasticity of demand is equal to one. So this is all about the demand curves with constant elasticity. 23. Flatter the demand curve, greater the Elasticity: in this lecture, we will continue our discussion on types off demand girls. And then we will discuss the relationship between slope and elasticity. Have a look at the falling demand coves. Can you tell me which one is elastic on which one is in elastic? No. Let me make it simple for you. Then can you know? Tell me which one is elastic on which oneness in elastic If you are thinking demand curve on the left is in elastic on demand. Cover on the right is elastic. Then you are absolutely right. This is because in figure A the percentage decreasing quantity demanded, it's less than the percentage increase in price. This makes the price elasticity of demand less than one. On the other hand, in figure B, the percentage decreasing quantity demanded is created on the percentage increase in price . This makes the price elasticity of demand greater than one. Taking the discussion towards slope and elasticity. We already know that price elasticity of demand is closely related to the slope of the demand. Cough the rule of timbers. If to demand curves are passing from the same point, then the flatter the demand curve degraded the price elasticity of demand. The falling figure illustrates this situation here. Demand cough. D two is flatter than demand. Cough divan. I know that if the price off the commodity falls from $5 to $4 the monk of divan shows arising. Quantity demanded from zero units to 10 units. Vile demonic of D two shows a rising quantity demanded from zero units to 15 units. So this implies that for a given change in price, change in quantity is creator corresponding to D to than divan. Their food d two is more lasting then. Divan. So with this, we're done with price elasticity off demand. In my next lecture, I will introduce you to other demand elasticity ease. 24. Other Demand Elasticities: So far, we have been discussing price elasticity off demand, which measures the responsiveness off quantity demanded to changes in price. In this lecture, we will discuss other important elasticity ease. The 1st 1 is income elasticity off demand. The income elasticity of demand majors the responsiveness off demand to changes in income. It is calculated as the percentage change in quantity demanded, divided by 3% change in income. We know that if a good is a normal good, then quantity demanded on income moving the same direction and therefore normal goods have positive income elasticity ease. On the other hand, if a good is an inferior good, then quantity demanded decreases with the rise in income. So the quantity demanded on income move in opposite directions and therefore inferior goods have negative income. Elastic cities. June I followed the link in the resources section for a refresher on the difference between normal goods and inferior goods. The other important demand elasticity is cross price elasticity off demand the cross price elasticity off demand majors. The response off quantity demanded off one good toe, a change in the price off. Another good. It is calculated as the percentage change in quantity demanded off good one divided by the percentage change in the price off. Good too. The cross price elasticity can be positive or negative, depending on whether the goods are substitutes or complements. If the goods are substitutes like the end coffee, then if the price off the increases, consumers will switch to coffee, causing an increase in quantity demanded off coffee. So in the case off substitutes we have positive cross price elasticity. As the increasing price off one good causes an increase in the quantity demanded off other good and vice versa. On the other hand, if the goods are compliments like fountain, pen and ink, then if the price of fountain pen devises, its demand will fall and as a result, the demand for INC will also fall. So in the case off complementary goods, the cross price elasticity is negative as increasing price off one good causes a decrease in the quantity demanded off other good and vice versa. With this, we're done vit elasticity off demand. It's time to test your knowledge. No 25. Price Elasticity of Supply and it's determinants: after completing the discussion on elasticity off demand. Let us now move toe elasticity. Off supply elasticity is off. Supply are defined in a similar manner. The price elasticity off supply majors, the response off quantity off a good supplied to a change in price off that good as we know from law off supply higher prices racy quantity supplied. So the price elasticity of supply is usually positive supply off. A good is said to be elastic if the quantity supplied response substantially to changes in price. This is the case when price elasticity of supply is greater than one, and supply is said to be in elastic. If the quantity supplied response only slightly to changes in the price. In this case, the price elasticity of supply is less than one. Let's have a look at some off the determinants that affect price elasticity of supply. The first, the dominant is availability on nature. Off inputs. Even if the price off your product rises, you won't be able to increase the quantity supplied if you don't have the desired inputs in place, For example, see you have a product for which unity of workers to understand a particular technique first before they start operating the machines in the factory and see the training period is two months now. If the price off your product rises, you may be able to hire more workers today, but you will be able to increase the output are the desired rate only after their training period. So the conclusion is that if you are using inputs that are not commonly available, then your supply will be related. Lee in Elastic. On the other hand, if you use commonly available inputs, then your supply will be related. Lee Elastic The second determinant is cost off production. Say you have a toy manufacturing factory and let's assume that you are utilizing all your machine greased toe their full potential. See you are running your machinery 24 hours a day now. If the price off toy rises to increase the supply, you will have to install a completely new machinery to operate. Ritual cost you a very heavy amount, So in this case the supply will be in elastic as increasing production will cause a substantial increase in the cost of production. The last two city off supply also depends on the willingness off the suppliers to take production related risk. If supplies are willing to take risk off higher output, the supply will be more elastic. On the other hand, if suppliers are not willing to take risk off, higher output supply will be in elastic. The fort, the dominant is time, period, and this is one off the most important determinants off price elasticity. Off supply supply is usually more elastic in the long run, then in the short run. This is because, in short, Trinh, you cannot change all the factors off production. But in the long run, you can, for example, think off a small scale bigger. If the price off bakery products rises, the baker can put more off his own time toe making bread. Also, within a week he may hire new workers to help him produce more output. But can inability size off his bakery in a V doesn't seem possible, right, But in the long run, he can double decides office, bakery and produce more output. This is why it the quantity supplied it's more responsive to changes in price in the long run. So this is all about the determinants off supply. In the next lecture of every discuss, how to calculate price elasticity of supply 26. How to compute price elasticity of supply? : In this lecture, we will discuss how to calculate price elasticity off supply. If we can use the midpoint method to calculate the price, elasticity off suppliers will accordingly price elasticity off supply is equal to person. They're changing quantity supplied, divided by person. They change in price. Let's take a new medical example. Suppose a producer offers to sell 11,000 units off a commodity when its price is $3.15 per unit. Vile, only 9000 units are offered. If the price reduces to $2.85 per unit, what is the price elasticity of supply here? Using the midpoint method, the percentage change in price is equal to minus 10% and the person changing quantities supplied is equal to minus 20%. Using both these percentages, we get price elasticity of supply. Equal toe to this means that the supply is elastic as to quantity supplied has changed proportionately twice as much as the price 27. Constant Elasticity Supply Curves: In this lecture, we will discuss three situations where the supply curves have constant elasticity. The first situation is when the supply curve is a vertical street ling. This type of supply is called perfectly inelastic supply. In this case, no matter what the price is, the quantity supplied remains the same. So in this case, the price elasticity off supply is zero. The second situation is when we have ah horizontal straight line supply cough. This type of supply is called perfectly elastic supply. In this case, even a small change in price leads to huge changes and quantity supplied. The price elasticity of supply is infinity. Here. The third and last situation is when the supply cough start from the point off origin. In this case, the person changing quantities supplied. It's always equal to percent a change in price, so v get price. Elasticity of demand equal to one at all points off the supply cough. But there is a very important property involved here. It does not matter what angle the supply curve makes. It could be 30 degree, 45 degree or 60 degree, but if it's passing from the origin, then price elasticity of supply will always be equal to one. This is a very strong point, but the proof off this is quite simple. I have covered it in my next lecture. 28. Case when elasticity of supply is not constant: in this lecture, I will give you an example to show you that the price elasticity off supply might not be constant throughout this Apply cough. Think off it in this way. See, you have a time infection factory and you currently have only one machine that you operate . Let's assume two things. First, the maximum potential off your machine is 12 hours. This means you can run your machine for at max 12 hours a day. Second, you are currently not able to utilize the full potential off your machine. You use it only for 10 hours a day. Now, if the price off toys rises by a small amount, you can easily increase your quantity supplied. All you have to do is start running your machinery for 10.5 us every day. This implies till the time you have capacity for production that is not being used. You can substantially respond to changes in price. So here the price elasticity of supply is high. Now, if you keep on increasing the quantity supplied in response to small increases in price, then there will come a point when you will hit the full capacity. And once you have reached a situation where you are utilising the full potential of your machine. To increase the production further, you will have to invest in a new machinery and minded. You will be reluctant to do so only for a small price change. She will take this step only if price rises substantially. So here the supply becomes less elastic. To summarize our discussion, we can say as firms often have a maximum capacity for production, the elasticity off supply may be very high at low levels, off quantity supplied on very low at high levels, off quantity supplied. De falling figure represents a new medical example off this phenomenon here, when the price rises from $3 to $4 the quantity supplied rises from 100 to 200. In this case, the percentage change in quantity supplied is greater than the person that change in price , so the price elasticity of supply is greater than one. On the other hand, when price rises from $12 to $15 the quantity supplied rises from 500 to 525. In this case, the percentage change in quantity supplied. It's less than the person they change in price. So the price elasticity of supply is less than one here. With this discussion, we are done with elasticity off supply. It's time to test your knowledge, No.