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This is Demand, supply and changing prices.

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This walkthrough uses a generic synthetic narrator, not a
recording of Craig Wright.

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Pause whenever you need time to calculate.

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The original lesson, written walkthrough and exercises
accompany this video.

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A market model organises plans.

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Imagine a weekly market for boxes of identical notebooks.

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Buyers have different uses for notebooks, and sellers face
different costs and capacities.

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Rather than describe every person separately, we summarise
their plans at each possible price.

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The model asks what quantity would be demanded and supplied if
that price prevailed while specified other

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conditions remained unchanged.

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It does not assume that every quoted price is actually observed
or that all planned trades occur.

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Define the product, quality, location, period and units before
combining different people's plans into

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market schedules.

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Demand relates quantity to the good's own price.

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Read the equation as a conditional plan.

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Substitute 10 for P: 60 minus twice 10 equals 40 boxes per
week.

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Substitute 15: 60 minus 30 equals 30.

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The negative coefficient represents a downward-sloping demand
relationship over the relevant range.

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It does not mean people always buy fewer boxes whenever a
higher price is observed in the real world; other

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conditions might have changed too.

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This linear schedule is intended only for prices that imply
meaningful non-negative quantities.

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Extending it indefinitely to predict negative purchases would
misuse the model.

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A movement is different from a shift.

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Suppose the notebook price falls while incomes, preferences and
other relevant circumstances stay fixed.

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The original schedule tells us the new quantity demanded: that
is a movement along it.

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Now suppose a new group of students enters the market.

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More boxes might be wanted at every notebook price, requiring a
different schedule.

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That is a shift.

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Income effects depend on the good: demand for a normal good
rises with income, while demand for an inferior

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good can fall.

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These labels describe responses to income, not a moral or
physical judgement about the product's quality.

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Supply describes sellers' conditional plans.

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Substitute the price into the supply equation just as we did
for demand.

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Twelve plus ten gives twenty-two boxes; twelve plus fifteen
gives twenty-seven.

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The positive relationship can reflect additional production
becoming worthwhile as price covers higher

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marginal costs.

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It may also involve inventories or entry over the relevant time
horizon.

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A market supply schedule need not be upward sloping in every
possible setting.

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Our simple model assumes a competitive setting in which
individual sellers take price as given and can

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adjust quantity.

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Later models can examine market power, fixed capacity and
strategic pricing.

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Supply shifts have different causes.

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Suppose the price of paper falls while notebook prices remain
unchanged.

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Producing boxes may become worthwhile for sellers who
previously found it too costly.

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This is an outward supply shift.

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By contrast, a rise in the notebook price with unchanged
production conditions moves sellers along the

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existing schedule.

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Be precise about the time horizon.

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Tomorrow's supply may depend on stock already printed, whereas
next year's supply can include new equipment

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and firms.

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The same event may therefore have different short-run and
long-run effects.

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A useful prediction specifies which adjustment opportunities
are available.

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Worked example: solve the equilibrium.

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Step one writes the equilibrium condition: quantity demanded
equals quantity supplied.

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Step two collects the constant terms on one side and price
terms on the other.

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Starting with 60 minus 2P equals 12 plus P, subtracting 12
gives 48 minus 2P equals P.

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Adding 2P gives 48 equals 3P.

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Step three divides both sides by three to obtain 16 pounds per
box.

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Step four substitutes this price into both original equations.

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Both give 28 boxes per week, so the calculation is internally
consistent.

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Equality is a model condition, not a guarantee that any actual
price instantly adjusts to it.

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Worked example: diagnose a shortage.

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First evaluate both schedules at the same price and over the
same period.

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Second subtract supplied quantity from demanded quantity: 36
minus 24 equals 12.

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That difference measures unmatched purchase plans, not
necessarily a recorded queue of exactly twelve boxes.

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Actual sales may be limited by available supply and by matching
or other frictions.

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Buyers might compete through higher offers, waiting or search
effort.

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Which adjustment occurs depends on the market's rules.

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Scarcity remains at the equilibrium too, because producing and
buying notebooks still uses resources that

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have alternative uses even when no excess demand appears in
this model.

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Worked example: diagnose a surplus.

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Calculate demand as 60 minus twice 20, which gives 20.

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Calculate supply as 12 plus 20, which gives 32.

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Subtract demand from supply: 32 minus 20 equals 12.

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Some sellers may cut prices, reduce output, store goods or seek
other buyers.

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Our static model does not specify the speed or exact process of
adjustment.

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Nor does a planned surplus prove that twelve physical boxes
have already been produced and wasted.

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Supply is a planned quantity at a price; the timing of
production and whether unsold inventories exist

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require additional information.

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Worked example: a demand shift.

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Step one identifies what changed: the demand intercept rises
from 60 to 72, while its price coefficient and

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the entire supply schedule remain unchanged.

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Step two equates the new demand with the old supply.

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Rearranging gives 60 equals 3P, so price is 20.

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Step three substitutes: 12 plus 20 gives 32 boxes.

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Compared with the original equilibrium, price rises by four
pounds and quantity by four boxes.

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Quantity demanded also changes, but calling this only a
movement along demand misses the initial change in

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conditions.

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The equilibrium comparison uses two different demand curves.

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Worked example: a supply contraction.

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Begin from the original baseline rather than silently carrying
forward the previous demand shift.

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The new equality rearranges to 54 equals 3P, which gives a
price of 18.

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At that price, demand is 60 minus 36, or 24 boxes.

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Supply is 6 plus 18, also 24.

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Relative to the original price of 16 and quantity of 28, price
increases by two pounds and quantity falls by

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four boxes.

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The higher price partly offsets the supply contraction through
movements along the schedules.

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It does not undo the underlying loss of supply at each given
price.

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Several changes can occur together.

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Combine the two shifted schedules and solve rather than adding
verbal predictions mechanically.

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Seventy-two minus 2P equals six plus P becomes 66 equals 3P, so
price is 22.

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Supply then gives six plus 22, or 28 boxes.

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Demand gives the same result.

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In this particular numerical case, the quantity effects exactly
offset.

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Other shift sizes could raise or lower quantity.

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A qualitative diagram often identifies some directions but
leaves others ambiguous.

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Saying that an effect is ambiguous without additional
information is a valid analytical conclusion, not a

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failure to understand the model.

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Observations do not identify the cause automatically.

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Two observed transactions cannot reveal an entire demand curve
if demand or supply shifted between them.

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For example, a festival could increase both the number of
buyers and sellers' staffing costs.

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Observed price and quantity would reflect both mechanisms.

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To investigate causality, look for evidence about the changes
in relevant conditions, a credible comparison

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group, or a research design that separates influences.

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Even then, report uncertainty.

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The phrase "holding other things constant" is a condition of a
model comparison; it is not something we can

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assume simply because a spreadsheet records only price and
quantity.

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Equilibrium is not a moral verdict.

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A price can clear a market even when some people cannot afford
the product, when ownership is disputed, or

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when production imposes pollution costs on neighbours.

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Those issues are not disproved by the intersection of two
curves.

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Under particular competitive assumptions, economists can make
stronger claims about gains from trade and

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allocation, but the assumptions must be stated.

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A liberty-oriented perspective may prioritise voluntary
exchange and secure rights; another perspective may

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weigh distribution differently.

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Clear analysis separates the mechanism that determines an
outcome from the ethical reasons for supporting,

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changing or rejecting the institutions around it.

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Use the model carefully.

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A diagram and an equation can tell the same story if they use
consistent axes and definitions.

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Conventionally, price appears on the vertical axis and quantity
on the horizontal axis, even though our

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equations express quantity as a function of price.

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You can practise without a graph by checking quantities at
several prices.

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The exercises use new schedules and require explicit numerical
answers.

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Reflection fields are ungraded: they are a place to explain
which conditions must remain fixed or why

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observed correlations are insufficient.

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Avoid converting a correct algebraic solution into an
unsupported claim about a real market.