All right, in this working with diagrams feature were goi.docx

>> All right, in this working
with diagram's feature we're going to look at and exhibit
in chapter three titled Shifts and the Demand Curve.
So, let's start with the demand curve.
We've got our axis here.
We've got quantity demanded on the horizontal axis and price
of the good on the vertical axis and we're going
to look a given demand curve, D1.
And we're going to pick a point on this demand curve point A
and we're going to say that that point goes along with a price
of 20 dollars and it goes along
with a quantity demanded let's say a 500 dollars.
And then, we're going to take a point, point B, I'm going to
say
that goes along with the price of 10 dollars
and a quantity demanded we're going to say of 700.
All right.
Now, we want to increase demand, what does it mean

if we increase the demand for a good?
Well, that means that individuals are willing and able
to buy more units of this good at each [inaudible] price.
So, instead of let's say buying 500 or quantity demanded 500
at 20 dollars, at 20 dollars, let's say they want to buy 600.
I want to put a point here C and it goes along
with a quantity demanded of 600.
And let's suppose that at 10 dollars,
instead of buying a quantity demanded
or having a quantity demanded of 700,
they want a quantity demanded or they want to buy 800, right?
So now, if we connect point C and D,
we get a new demand curve, all right?
So an increase in demand,
an increase in demand is diagrammatically illustrated
by rightward shift in the demand curve,
the demand curve shifts right.
Again, an increase in demand is represented diagrammatically

as rightward shift in the demand curve.
Well, what about a decrease in demand?
Let's start with a demand curve once again.
So, here is quantity demanded and price of a good and again,
we're going to draw a demand curve D1 and we're going
to pick a point, point A and we're going to say that goes
with 20 dollars and with a quantity demanded let's say
of 500.
Now, we're going to pick another price, 10 dollars and again,
that's going to go
with a certain quantity demanded let's say of 700.
Now, we have a decrease in demand
or what does a decrease in demand mean?
It means that individuals are willing and able to buy less
of the good at each and every price.
So at 20 dollars, instead of wanting to buy 500 units,
let's say they want to buy 400 units.
So, I'm going to put a point here,

I'm going to call it point C, label this point down here,
point B. I'm going to call it point C and we're going to have
that going along with 400.
And then at 10 dollars, instead of individuals wanting
to buy 700, we're going to have them want to buy 600.
So we're going to put a point right here, point D
and we're going to have
that point D correspond the 600, right?
Now, if we connect this point C and D,
we get a new demand curve D2 and this shows a decrease in
demand.
So, a decrease in demand is represented
by leftward shift in that demand curve.
Let's recap.
Demand goes up, that means the demand curve shifts
to the right.
Demand goes down for a good
that means the demand curve shifts to the left.

>> And this is working with diagrams feature
that appears in Chapter 3.
We're going to look
at an exhibit title moving to equilibrium.
So let's first look at a market that we're going to put quantity
of a good on the horizontal axis and the price
on the vertical axis and we've got a downward sloping demand
curve that represents law of demand,
price and quantity demanded moved in opposite directions
and then we have a upward sloping supply curve
that represents the law of supply,
price and quantity supplied moved in the same directions
and let's pick a particular price here.
Let's suppose that we pick this price
and this price is 15 dollars.
Now, the first thing we want to know is,
what is the quantity supplied at this price?

So to get that, we come over from 15 dollars all the way
over to the supply curve and then come
down to the horizontal axis
and let's suppose this number is 150,
so our quantity supplied here is 150.
Let's get our quantity demanded, we go from 15 dollars
over to the demand curve and then come
down to the horizontal axis, the quantity axis
and let's suppose this number is 50
so 50 is our quantity demanded.
Now you'll notice that at 15 dollars here,
our quantity supplied which is 150 is greater
than our quantity demanded which is 50, all right?
So this is the definition of a surplus.
So here is our surplus on our diagram, we have a surplus here
of 150 minus 50 or 100 units, there's a surplus
that have 150-- or I'm sorry, a surplus of 100 units.
Now, what happens when there is a surplus?

Well, think of what suppliers would do, they have a surplus
of 100 units and how do you get rid of a surplus?
Well, one of the things you do is begin to lower a price
and as you lower a price, the quantity demanded increases
and the quantity supplied decreases.
So, suppliers are going to start lowering price, right?
You have to start lowering price from 15 to 14 to 13 and so
forth
and so on until there is no longer any surplus
and that would be at this point right here.
Let's point this point as E as equilibrium
and the price let's say here is 10 dollars.
Now, what is the quantity demanded at 10 dollars?
Well, we go from 10 dollars out to the demand curve and come
down here so the quantity demanded let's say is 100 units.
What is the quantity supplied at 10 dollars?
The answer is go from 10 dollars to the supply curve,
come on down in the horizontal axis,
the quantity supplied is 100.

Ten dollars is our equilibrium price, E-Q-U-I-L-I-B-R-I-U-M,
that's our equilibrium price and this quantity, 100,
is our equilibrium quantity.
All right, so let's just recap here.
If we have a price like 15 dollars and there's a surplus
at that price which means quantity supplied is greater
than quantity demanded, price will move
down until it hits the equilibrium level.
Now, let's start with the different price,
let's again look at our diagram, we'll put quantity
and price on the axis again.
Again, we're going to have our downward sloping demand
curve
and our upward sloping supply curve and this time we're going
to start at a price of 5 dollars, so here's 5 dollars.
Now, let's figure out what our quantity supplied is.
Well, we go out from 5 dollars to the supply curve,
come down to the horizontal axis and this is 50

as our quantity supplied this time.
But what is our quantity demanded?
Our quantity demanded is we start at 5, go all the way
to the demand curve, come down and let's say this is 150,
that's our quantity demanded this time.
So our quantity demanded is now greater
than our quantity supplied.
Our quantity demanded, 150,
is greater than our quantity supplied, 50.
What do we have here?
We have what is called a shortage.
This is how we define a shortage.
Shortage is defined as quantity demanded greater--
they've been greater than quantity supplied.
And what will happen if there's a shortage?
Well, people want to buy more of this good, the 150 units
than sellers want to sell, they only want to sell 50.
So, buyers are going to start to b up the price,

the price is going to begin to rise, all right.
Price is going to begin to rise and as the price rises,
the quantity demanded is going to fall
and the quantity supplied is going to increase until we get
to this point, point E again where we're
at equilibrium, all right.
And that equilibrium, the quantity demanded
and the quantity supplied are the same.
All right, so recapping.
Again, we're looking at here at the market with P and Q,
price and quantity, on our axis, we got a--
we have a downward sloping demand curve
and an upward sloping supply curve.
If the price is here, let's say P1, there is going
to be a surplus of this good and price is going to begin to fall.
If we're at a price like P2, we have a shortage of this good
and price is going to begin to rise.
And so, the convergence is on equilibrium,

this point right here, and the equilibrium price, PE,
and the equilibrium quantity, QE.
And what is so special about equilibrium price?
Well, at that price, the quantity supplied of the good
and the quantity demanded of the good are one and the same.
>> In this feature we're going to look at an exhibit
in Chapter 3 titled Equilibrium Price and Quantity Effects
of Supply Curve Shifts and Demand Curve Shifts.
So, let's look at a market setting beginning here with Q
and P on our axis, price and quantity on our axis
and let's have a downward sloping demand curve, D1,
and upward sloping supply curve, S1, and let's go ahead
and mark the equilibrium at point one.
The equilibrium price is P1 and the equilibrium quantity is Q1.
Now, let's change something on the buying side of the market.
Let's have demand increase and see what happens
to the price and quantity.

Well, if demand increases we know
that the demand curve is going to shift to the right,
so let's go ahead and shift that to the right
and now let's identify our new equilibrium at point two.
There's a new equilibrium price, P2,
and there's a new equilibrium quantity, Q2.
So an increase in demand ends up increasing the equilibrium
price
and increasing the equilibrium quantity.
Let's start with our market situation one more time
and this time we're going to change supply.
So, here's our demand curve and our supply curve,
initial equilibrium at one with equilibrium quantity Q1
and the equilibrium price P1.
Now, let's have a supply decline,
so a supply of a product is going to decline.
What does that mean in terms of the supply curve?
Well, if supply goes down, supply declines.
That means the supply curve shifts leftward,

so S1 to S2 where we identify our new equilibrium point
as point two and that comes with a higher equilibrium price
and a lower equilibrium quantity.
Now on our third example, let's change both demand
and supply at the same time.
So, here's our market again, demand curve, supply curve,
equilibrium at point one, equilibrium price P1,
and equilibrium quantity Q1.
Let's have demand increase and let's have supply decrease
and let's have the change in demand be greater than--
let me put a greater than sign-- than the change in supply.
So we're going to have demand increase, so what does that
mean
in terms of the demand curve?
The demand curve has to shift to the right.
All right, so we're shifting it to the right and supply is going
down so that means the supply curve shifts to the left
but we have to make sure that we don't shift that supply curve

to the left as much
as the demand curve shifted to the right.
So, let's shift that right here,
I'm going to make it a small shift in comparison, S1 to S2.
All right, so notice our demand shift here is bigger
than our supply shift and that's because we said demand was
going
to increase by more than supply decreases.
Well, where is our new equilibrium?
Our new equilibrium is right here at the intersection of D2
and S2, that's at point two, and that new equilibrium goes
with a higher equilibrium price
and a higher equilibrium quantity.
All right, let's do another one.
We start off in equilibrium again in a market setting
and with our demand curve, D1, and our supply curve, S1,
equilibrium at point one, equilibrium price, P1,
equilibrium quantity, Q1.
Let's have demand increase, supply decrease,

and let's have them change by the same amount.
So a demand is going to increase by the same amount
that supply decreases.
Well, if demand increases then demand curve is going to shift
to the right, so we'll shift that to the right.
And if supply decreases, supply is going to shift to the left.
So let's have supply shift to the left but we have to shift it
to the left by the same amount
that demand shifted to the right.
That means it has to go through S2
and our new equilibrium is point two here
at a higher price level.
But notice that there is no change here in quantity.
That's because the demand and supply changed
by the same amount but in opposite directions.
So this time, price goes up, equilibrium price goes up
but there is no change in quantity, all right.
So, what are we talking about in this feature?

We're saying that changes in demand can lead to changes
in price and changes in quantity or changes in supply can lead
to changes in price and changes in quantity
or we could have changes in demand plus changes
in supply leading to changes in price
and possibly changes in quantity.
>> In this feature, we're going to talk about an exhibit
in chapter three titled Consumers and Producers Surplus.
Let's begin by defining consumers surplus, CS.
Consumer surplus is the maximum buying price that a person
repay
for a good minus the price paid.
So, let's give an example.
Suppose that the price paid for a good is 10 dollars
and the highest price that an individual would be willing
to pay for that good is let's say 15 dollars.
So, the consumer surplus in that case would be five dollars.

Now, let's represent this diagrammatically.
So, let's look at a demand curve.
We're going to put our axis in here, price and quantity
of a good and here is our demand curve that is downward
sloping.
And we're going to have a small supply curve here just
intersecting right here because we want to--
just want to identify our equilibrium price.
Now, let's say our equilibrium price here is five dollars,
right?
Now, let's pick a certain quantity
on the quantity axis here 50
and let's ask ourselves what is consumer surplus equal
to on the 50th unit?
Well, to find the highest price that a person would pay
for the 50th unit, we go up from the 50th unit all the way
up to the demand curve.
And let's say that the price that corresponds
to that highest point on the demand curve is seven dollars.

So, the maximum buying price is seven dollars and the price
paid
which is the equilibrium price is five dollars.
So, seven minus five is two dollars,
consumers surplus equals two dollars right here
on that 50th unit.
Now, that's on the 50th unit.
On the first unit, the consumer surplus would be higher.
On the 51st unit, it would lower but we're basically talking
about consumer surplus if we're talking about a good
that is continuous as equal to the following area.
Everything under the demand curve
and above the equilibrium price out to the equilibrium
quantity,
here is the equilibrium quantity QE.
So, we're talking about this area that we're now coloring
in as the area of consumer's surplus, all right?
So let's redraw that one more time.
Here is quantity in price and we have a demand curve here.

Now, we've got out supply curve
that gives us our equilibrium price of five dollars.
And here is our equilibrium quantity, right?
So, consumer surplus is this area that we're now coloring in.
It's the area under the demand curve
and above the equilibrium price all the way out here
to the equilibrium quantity.
So, all this area that we're coloring in is consumer surplus.
Well, let's now talk about producer surplus.
Producer surplus is sometimes called seller surplus
and it is equal to the price receive
by the seller minus the minimum selling price,
the minimum selling price.
All right, so let's suppose that the price received by the seller
for a good, it's let's say 12 dollars and the lowest price
that the seller would have sold that good
for let's say is eight dollars.
So 12 minus eight gives us a producer surplus

of four dollars,
this diagrammatically represent this, right?
So, we've got quantity and price on our axis one more time
and we've got this upward sloping supply curve.
And where this time, we're going to draw
in a small demand curve here just
so what we can get equilibrium price.
And again, we're going
to say equilibrium price is five dollars.
Now, let's see what the producer surplus let's say is
on the 50th unit.
So, we're looking for producer surplus or seller surplus.
So what is the price received?
The price received by the seller is up here at 5 dollars.
The minimum selling price is obtained by going from 50
up to this point right here on the supply curve and coming
over to the price axis.
Let's say that that dollar amount is three dollars.

So, the difference here between the price received
and the minimum selling price is two dollars
and that's what a producer surplus equals on the 50th unit.
Well, it might be different for something less than 50
and something more than 50 so let's go and--
go ahead and map out our equilibrium quantity QE
right here.
And so, producer surplus on all units is going to be the area
that I'm coloring in right now, it's going to be the area
under the equilibrium price
and above this supply curve all the way
out to equilibrium quantity, right?
We'll do that one more time.
So again, here is our axis P and Q, price and quantity.
We've got this upward sloping supply curve,
we've got our demand curve just so that we can get
out equilibrium price here for five dollars
and a producer surplus is this area

under the equilibrium price.
And above the supply curve, the area that I'm coloring in now,
all the way out to the equilibrium quantity.
Here is the equilibrium quantity QE.
All right, let's put this demand and supply curves together
and look at producer surplus and consumer surplus together.
So here, we have price and quantity again on our axis,
we have a downward sloping demand curve
and an upward sloping supply curve.
Well, notice our equilibrium right here,
there is our equilibrium point.
Here is our equilibrium quantity
and here is our equilibrium price.
And let's designate two areas here, this is area A
and this is area B, all right?
So what is consumer surplus equal to in equilibrium?
It would be area A, right?
So it's this area right in here

that we're coloring in right now.
So, what is our producer surplus equal to?
It is equal to area B. It's this area that we're coloring
in here in blue, all right?
So we have consumer surplus A and producer surplus B.
[ Silence ]
>> Male: In this "Working with Diagrams" feature we're going
to talk about an exhibit in Chapter 3 titled,
"The Change in Supply Versus a Change in Quantity
Supplied."
Now, the two terms "supply"
and "quantity supplied" sound a lot alike.
But we're referring to different things.
All right.
Let's look at a given supply curve first to talk
about a change in supply.
So we're going to put our quantity supplied and price

on our axes, and we're going
to draw an upward sloping supply curve, let's say S1.
Now, when we're talking about a change in supply,
we can have an increase in supply or a decrease in supply.
And we're talking about a shift in the entire curve.
So if we're talking about an increase in supply,
this supply curve shifts to the right from S1 to S2.
If we're talking about a decrease in supply,
the supply curve shifts from S1 leftward to S3.
All right.
So a change in supply, which is what we're showing here talks
about or relates to a shift in the entire supply curve.
And there are certain factors that if they change can bring
about this change in supply.
For example, one, prices of relevant resources,
if they change that can lead to a change
in the supply of a good.
Two, technology; if technology changes that can lead

to a change in supply.
Prices of other goods can lead to a change in supply.
Number of sellers, for example, if the number
of sellers increases, the supply is going to increase
and the supply curve is going to shift to the right.
Five, expectations of future price can change supply.
Six, taxes and subsidies;
[ Silence ]
and number seven, government restrictions.
So all of these, all one through seven can lead
to a change in supply.
Now, let's talk about a change in quantity supplied.
Again, let's have our two-dimensional diagram
with the price and quantity supplied on the axes.
And we've got our upward sloping supply curve.
Now, let's look at two points on the supply curve, A and B.
And A goes with a certain quantity supplied, let's say 25.
And B goes with a certain quantity supplied, let's say 50.

All right; so if we're talking about a change
in quantity supplied, we're talking about a change from 25
to 50, or a movement from A to B. All right;
so a change in quantity supplied is relevant
to a movement along a given supply curve.
Now, what can cause this change in quantity supplied?
How do we get, let's say, from 25 to 50?
Well, let's suppose at 25 the price is $5 per unit,
and the only way we're going to get from 25 to 50 is
if the price were to increase, let's say, to $7.
All right; so let's recap.
If we're talking about a change in supply, we're talking
about an entire supply curve shifting.
And we said there were one through seven factors
that can lead to that change in supply.
Again, there are prices of relevant resources, technology,
prices of other goods, et cetera.
If we're talking about a change in quantity supplied,

we're talking about a movement along a given supply curve,
and the only thing that can bring
that about is a change in price.
[ Silence ]
>> Male: In this "Working with Diagrams" feature we're going
to look at an exhibit in Chapter 3.
And the title of that is "A Change in Demand Versus a Change
in Quantity Demanded."
Now, at first glance the word "demand" and the word
"quantity demanded" sound a lot alike.
But they are two different things, and they refer
to two different things.
Let's talk about demand first.
If we were to diagrammatically represent demand we'd draw a
demand curve.
So we'd have quantity demanded and price on our axes,
and we'd draw a demand curve.

Let's say D1.
And if we're talking about a change in demand, we're talking
about a shift in the demand curve.
So if demand increases, we known that this demand curve is
going
to shift to the right, from D1 to D2.
And if we're talking about a decrease in demand,
we know that demand curve is going to shift to the left,
let's say from D1 to D3.
All right.
So when we're talking about a change in demand, we're talking
about a shift in the demand curve.
So I'm going to write here,
"Change in demand equals shift in demand curve."
And there are a number of factors that can change demand
or lead to this shift in the demand curve.
Now, let's just note them.
One is a change in income.
Two is a change in preferences.

Three is a change in the prices of related goods, substitutes
and complements; changes in the prices of related good.
Four is a change in the number of buyers of a good.
For example, if there are more buyers
for bread the demand curve for bread shifts to the right.
And five is the expectations of future price.
All of these things, all of these factors are going to lead
to a change in demand, and lead to a shift in the demand curve.
Now, when we're talking
about quantity demanded, let's note that.
We've got quantity demanded and price on our axes,
and let's give a given demand curve here, D1.
When we're talking about a change in quantity demanded,
we're talking about a change in a particular number.
So let's look at two points on this demand curve: point A
and point B. And the quantity demanded that corresponds
to A is the quantity demanded, let's say 10.
And the quantity demanded that corresponds point B is 15.

Now, what can lead to this change in quantity demanded?
What can move us from 10 quantity demanded
to 15 quantity demanded?
Well, your answer is on your vertical axis over here.
If price, let's say, goes from $10 here down to, let's say $5,
then quantity demanded is going to change from 10 to 15.
So this is the cause -- the change in price is the cause,
and here is the effect, the change in quantity demanded.
All right; so let's recap here.
Here's a demand curve, quantity demanded in price on our
axes.
What are we talking about when we're talking
about a change in demand?
Answer, a shift in the demand curve, to the right
or to the left; so change in demand.
What are we talking about when we talk
about a change in quantity demanded?
So here's another demand curve, D1, and now we want to look

at a change in quantity demanded.
We're talking about a movement from one point
on the demand curve to another point on a given demand
curve.
Or we're talking about a change from this number, 50,
let's say to this number, 100.
All right?
That's illustrative of a change in quantity demanded.
Now, the important thing to remember in economics is
that different factors lead to these two different things.
Again, a change in demand can be brought about by a number
of factors that we just listed: income, preferences, and so on,
the list that we talked about earlier.
But a change in quantity demanded can only be brought
about by one thing, and that's a change in the price of the good
that we're looking at.
So, a change in the quantity demanded
of apples can only be brought about by a change
in the price of apples.

>> Wall Street predictions are
that the big oil companies are going
to report big profits this quarter
and thus we can predict something else big.
In editorials, and on Capitol Hill, there will be cries
to have big new taxes on the oil companies.
Oil company executives will be lambasted in big hearings
and the witch hunt will be one.
But wait a second!
The oil companies don't set the world price of oil.
That's set in trading rooms and bank houses in New York
and London by young guys who make zillions each year.
There's absolutely no evidence
that the oil companies are colluding to fix prices
at artificially high levels.
Yes, oil and gasoline prices rose a lot after Katrina.
But that's because producing

and refining capacity fell off drastically
after the storm damage and thus the traders,
sensing shortage, drove up the price.
The oil companies benefitted from this rise in price,
but there have been plenty of times when the prices plummeted
and the oil companies have taken it on the chin.
When the world price of oil falls, pump prices fall too
and they've fallen dramatically since Katrina.
Are the oil companies making obscene profits?
No. As a general rule, they have profit margins far lower
than the big banks or high tech companies
and even below the average of large companies generally.
And anyway, profit is not a dirty word.
This is a free market country.
We're supposed to like profits.
The oil companies and [inaudible] search for more oil,
to refine it, to get it into my car,
and to pay its stockholders a dividend.

Is it bad to pay a dividend to a widow or a retiree?
I don't think so.
And what about this?
When I buy gas and it has to be brought from Nigeria or Libya
or Indonesia and great risk, refined, add huge taxes on it,
and then brought to my gas station, it costs less per ounce
than a bottle of this water that I get at my local grocery store.
Why doesn't anyone mention that?
How about oil executive pay?
Is it criminally high?
Well, it's a lot more than mine, but it's a joke compared
with Wall Street pay and Hollywood pay.
And what the heck does any movie star do that's even remotely
as valuable as powering this whole nation
and keeping the wheels of the nation moving?
I have the sneaking suspicion, that this hatred
of the oil companies is largely for the same reason
that our teenagers hate us, their parents because they're

so dependent on us, they respond with anger.
But senators are not supposed to be teenagers
and neither are newspapers.
Let's get this right.
The oil companies are not our moms and dads.
They're in business to make money.
But they do it fair and square and without them,
we would be in very bad shape.

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