Supply and Demand Double Shift

Summary

In this lesson, George Frost takes us through the intricacies of how double shifts in supply and demand affect equilibrium price and quantity. Using the example of fast food, the lecture explores the scenarios where consumer incomes decrease and the price of labor decreases simultaneously. The discussion highlights how income changes affect demand, particularly categorizing fast food as an inferior good. It further delves into the impact of labor price on supply. Through various demand-supply diagrams, George illustrates that while equilibrium quantity consistently increases, equilibrium price remains indeterminate, as its change depends on the relative magnitude of shifts in demand and supply. Ultimately, George advises tackling these complex problems by breaking them into single shifts to simplify analysis and prediction.

Highlights

• George Frost explains how to handle double shift problems in supply and demand, using fast food as an example 🍟.
• Incorporating fast food as an inferior good helps understand how decreased income boosts demand 🚶‍♂️.
• With a drop in labor costs, supply sees an upward shift, complicating demand-supply equilibrium 🌾.
• Equilibrium price can remain indeterminate, while equilibrium quantity typically shows a consistent increase 🔄.
• Lessons advocate for simplifying complex double shifts into individual demand and supply shifts for easier problem-solving 🧠.

Key Takeaways

• Understanding the impact of double shifts in supply and demand requires analyzing each shift individually for clear insights 🤓.
• Fast food is considered an 'inferior good' in this lesson, meaning its demand increases as consumer income decreases 🍔.
• Price changes for resources like labor affect supply, often causing it to increase when resources become cheaper 🚀.
• Double shifts can lead to an indeterminate change in equilibrium price, making quantity the more predictable metric 📊.
• Simplifying analysis by treating double shifts as single shifts helps in understanding complex scenarios more easily 🧐.

Overview

The intriguing world of supply and demand takes on a new layer of complexity when double shifts enter the equation. In this enlightening session, George Frost explores how simultaneous changes in consumer income and labor costs affect the fast food market. By categorizing fast food as an inferior good, where demand rises as income falls, Frost paints a picture of a dynamic economic landscape.

As labor prices dip, signaling a reduction in the cost of resources, supply increases. This juxtaposition of shifts makes predicting the equilibrium price a challenge with no definitive answer, while equilibrium quantity consistently rises. Through illustrative graphs, Frost expertly dissects the effects, showcasing scenarios where identical shifts yield varying outcomes.

What stands out is Frost's advice on tackling these nerve-wracking problems: don't be daunted by the complexity. Instead, address double shifts as single shifts in demand and supply. This strategic approach not only simplifies but also equips students to identify trends and predict economic outcomes with greater accuracy.

Chapters

• 00:00 - 00:30: Introduction to Double Shift Problems The chapter introduces a new type of economic problem involving double shifts, contrasting it with single shift problems. It presents a scenario involving changes in consumer income and labor costs, prompting an analysis of the effects on the equilibrium price and quantity of fast food. The key takeaway is the need to recognize multiple variables changing at once.
• 00:30 - 03:00: Effect of Decrease in Consumer Incomes The chapter discusses the effects of changes in consumer incomes and labor prices on the demand or supply of fast food. Initially, two ceteris paribus assumptions were that consumer income and labor prices remain constant, but these assumptions have now changed. The focus is to analyze the impact of a decrease in consumer incomes separately. The key question is how this change affects the demand or supply of fast food, which in turn influences the equilibrium price and quantity in the market.
• 03:00 - 05:00: Effect of Decrease in Price of Labor The chapter titled 'Effect of Decrease in Price of Labor' explores the dynamics of demand and supply in relation to consumer income. It emphasizes the point that while generally, a decrease in income leads to decreased demand for goods, there are exceptions. This applies to certain goods where demand does not necessarily fall with a decrease in consumer income. The discussion encourages students to think critically about the varying impacts of income changes on different types of goods, laying foundational knowledge for understanding economic behavior and market responses.
• 05:00 - 10:00: Analyzing Equilibrium Changes with Graphs The chapter 'Analyzing Equilibrium Changes with Graphs' discusses the relationship between different kinds of goods (normal and inferior goods) and how they relate to changes in income and demand. Normal goods have a direct positive relationship with income, meaning as income increases, demand increases. In contrast, inferior goods have an inverse negative relationship with income, meaning as income increases, demand decreases. This foundational concept is crucial for analyzing equilibrium changes graphically.
• 10:00 - 15:00: Indeterminacy in Double Shifts The chapter titled 'Indeterminacy in Double Shifts' discusses the impact of income levels on the consumption of fast food. Initially, as individuals with very low income receive more money, they tend to purchase more fast food. However, as people become wealthier, their preferences shift towards higher quality dining options. Thus, the chapter explores how consumer income changes affect fast food consumption trends.
• 15:00 - 20:00: Advice for Handling Double Shift Problems Chapter Title: Advice for Handling Double Shift Problems. The chapter discusses an economic scenario where fast food is considered an inferior good. It examines the impact of declining consumer incomes, leading to an increased demand for fast food as people become poorer.

Supply and Demand Double Shift Transcription

• 00:00 - 00:30 okay we're now going to look at a different kind of problem than the uh problem that we just saw with single shifts um let's take a look at the problem i put in front of you here what happens to equilibrium price an equilibrium quantity of fast food if consumer incomes decrease and the price of labor decreases okay so um i want you to recognize first with that problem hopefully recognizing first is that unlike the previous problem there are two things that have changed
• 00:30 - 01:00 right two ceteris paribus assumptions have changed two things that we used to hold constant of change so the first one is consumer income and the second one is the price of labor so we have to try to do is analyze these separately so um if consumer incomes decrease what happens to either the demand or supply of fast food right because if demand or supply of fast food don't change then the equilibrium price in equilibrium quantity of fast food won't change either so is income a factor which affects
• 01:00 - 01:30 demand or supply well at this point in the semester you should be saying income is clearly a factor which affects demand all right so if consumer incomes are going down what happens to the demand for fast food well first answer is oh if incomes are going down people have less money so they're going to buy less but remember that's not true of all goods right for many goods when income goes down people do buy less so when income goes up they buy more but there are some goods if you remember where that's not the case so at this point you should be
• 01:30 - 02:00 looking into your notebook or you know going through your mind and trying to remember this and remember there are two different kinds of goods there's normal goods and there are inferior goods so if you look back at your notes you'll see that if it's a normal good the relationship between income and demand is direct positive relationship or if it's an in for your good it's an inverse relationship negative relationship so what do you think here now it doesn't tell you in the question so to be honest with you if this was a question on a test i would tell you what
• 02:00 - 02:30 i thought what what what the assumption was we were making about fast food but what do you think fast food is that something people tend to buy more of when their income goes up or tend to buy less of well it probably depends over what income range you're talking about right if you're very very poor if you have no money and then all of a sudden you come into a little bit of money you'll probably start buying some more fast food but as you people make more money and more money and more money as they get wealthier they tend to look for better restaurants higher quality restaurants and so as consumer incomes increase people will buy less fast food
• 02:30 - 03:00 so we're actually going to assume that along those lines we're going to assume that fast food at least in this problem is an inferior good so once you know that fast food is an inferior good what's going to happen here well consumer incomes are going down as people get poor if fast food fast food is an inferior good then the demand for fast food
• 03:00 - 03:30 is actually going to increase right because the inverse relationship income is going down people are buying more fast food but remember that's not the only change there's also a change in the price of labor so what does the price of labor affect is that it's demand factor is that a supply factor well let's try to think about what labor is remember earlier semester we talked about labor labor is an example of a resource right labor is an example of a resource so what are we saying we're
• 03:30 - 04:00 saying the price of a resource has decreased well if you go back in your notes or you go back in your mind a little bit you should be able to remember that price of resources is a factor which affects supply if you go back in your notes you'll see there's a little negative sign next to it let's see if it makes sense if the price of resources go down the price of labor goes down then the cost of making the item for the producer is going to go down right so if the cost of producing the item's going to go down they're going to want to make more because it's cheaper right when the
• 04:00 - 04:30 cost of doing things in life go down people tend to do more of that activity so if the price of labor decreases that's going to cause the supply of fast food is swipe estimate is going to increase as well so basically in this problem you have two things that are happening the fat consumer incomes going down is going to drive the demand for fast food up because of the relationship between uh incoming and inferior good and the supply fast food
• 04:30 - 05:00 is going to increase because the price of a resource has gone down it's got become cheaper to make now what happened now of course the question doesn't ask you just about this the question asks you what happens the equilibrium price and the equilibrium quantity well for that we're going to have to go to our supply and demand diagrams and take a look at how these factors affect supply and demand so we're going to turn to that now okay let's take a look at the problem that we just discussed about what happens in the market for fast food to equilibrium price and equilibrium quantity in the market for fast food
• 05:00 - 05:30 when consumer incomes decrease and the price of labor decreases and remember we're going to assume that fast food is an inferior good okay so we'll just draw our graph right quantity in the horizontal axis price on the vertical axis demand and supply here's equilibrium price here's equilibrium quantity um and notice what did we say we said that the demand for fast food was going to increase right notice it's not going
• 05:30 - 06:00 to be moving along the curve it's going to be a shift in the curve because it's not the price of the product it's not the price of the product that's changing it's simply the um factor outside the graph so we're going to assume that that is a change in the in a factor outside it's going to be change in demand and demand is going to increase so we're going to shift the demand curve to the right okay but remember that's not the only shift we also said the price of labor decreases and we said when the price of
• 06:00 - 06:30 labor decreases supply is going to increase so we're going to shift the supply curve to the right and you notice when we do this that the equilibrium price in this graph has stayed the same right prices stayed the same same price right and equilibrium quantity has gone up so you might think well that's the answer equilibrium price has gone up in equilibrium uh quantity i'm sorry
• 06:30 - 07:00 equilibrium prices stay the same equilibrium quantity has gone up you think that was the answer the problem but let me just do just one thing let me draw the graph again so quantity price demand supply here's the equilibrium price here's the equilibrium quantity you tell me what what am i supposed to do the demand curve and let's just shift it to the right so i'll shift it to the right okay what am i supposed to do the supply curve shift that to the right i shift that to the right and i reach new equilibrium
• 07:00 - 07:30 now notice in this graph the equilibrium price has gone up and the equilibrium quantity has gone up by the way both graphs are correct i drew both i did exactly what i was supposed to do in both graphs i shifted the demand curve to the right and the supply curve to the right in the first graph that i showed you the price stayed the same and the quantity went up in this graph the price went um the price went went up and the quantity went up let me just do another graph
• 07:30 - 08:00 again same problem demand supply equilibrium price equilibrium quantity okay what do you want me to do the demand curve right consumer incomes are going down it's just to shift it to the right because it's an inferior good and i'm supposed to do it with the supply curve and you're supposed to shift the supply curve to the right because price of labor has gone down it's become cheaper to make the item and the supply curve
• 08:00 - 08:30 and notice in this graph i get a completely different answer the quantity has gone up again yes but the price has gone price has gone down so in all three graphs i have i have different answers in the in the first graph that i in the first graph that i did in the first graph that i did uh price stayed the same in the second graph that i did price went up and then the third graph that i did price went down so the question becomes what
• 08:30 - 09:00 what is the right answer well what you should see is that in all three graphs in the first graph quantity went up in the second graph quantity went up in the third graph quantity went up so in all three graphs quantity went up so i can safely predict quantity went up but in the first graph price stayed the same in the second graph price went up in the third graph price went down so i have three different answers for price so the answer to this type of problem is the quantity has gone up right because no matter how i draw the graph equilibrium quantity went up
• 09:00 - 09:30 but price i can't tell about price because depending on the magnitude of the shifts i could get a different answer for the price right if they shift relatively the same amount price stays the same if i get a situation in this where demand shifted more than supply then price went up and in this particular graph supply shifted more than demand and price went down so again the answer is for my problem is quantity went up and price is what we call indeterminate you can't
• 09:30 - 10:00 tell so how should you handle double shift problems right they seem pretty tricky here's my advice to you don't do the double shift problems um and i know you're saying why aren't i going to have to do them for exams yes but i wouldn't advise you them as double shifts i would advise you to do them as single shift problems which you have to know anyway and so i want to do is turn to some graphs to show you how to handle these kind of problems okay what you should see here is four single graphs right and the four graphs that you need to know
• 10:00 - 10:30 the graph over here i'm going to label this i'm going to label this graph 1. that's where demand is increasing i'm going to label this graph 2 that's where demand is decreasing i'm going to label this graph graph 3 and that's where supply is increasing and i'm going to label this graph graph 4 and that's where supply is decreasing so if you had a problem like i just gave you right where the consumer incomes decrease and it's inferior good and the price of labor
• 10:30 - 11:00 increases um i know sorry the price of labor decreases what i want you to do is how would you handle that problem well that problem would be do the exact same thing we did before right it's an increase in demand so that means it's like graph one but it's also an increase in supply so that means it's like graph 3. so if both of these things happen at the same time if you look right over here you can see the qua equilibrium quantity is increasing and if you look over at graph three you can
• 11:00 - 11:30 see that equilibrium quantity is increasing both shifts have the effect of increasing equilibrium quantity but look at the price if just demand increases the price goes up but if just supply increases the price goes down so those are having opposite effects on on the problems right that's driving this one's driving price up this is driving price down so since you don't know from the problem which uh shift is more is a
• 11:30 - 12:00 larger magnitude you basically just have to say i can't tell you about that variable right you can tell about quantity because they both have the same effect on quantity but they have opposing effects on price so that's indeterminate here work out a different problem let's work on a different problem and see if you can see it let's say you were given a problem where the demand for the product for some reason increases but the supply decreases okay what would be the graphs that would be implicated well it would be graph one again right and would also be graph in this case graph
• 12:00 - 12:30 four right because i said supply is decreasing demand is increasing so that's this graph supply is decreasing so that's this graph so what would be the answer well let's take a look well notice if you notice in both graphs what happens to equilibrium price in both graphs equilibrium price increases therefore you would be able to say oh i can tell you if demand increase in supply decreases they both have the effect of increasing equilibrium price but if you notice this graph as we saw
• 12:30 - 13:00 before equilibrium quantity increases when demand increases but in this graph equilibrium quantity decreases so if they're happening at the same time they're having opposing effects on each other and you won't be able to tell about quantity so again if demand were to increase and supply were to decrease this time then your answer would be oh i can tell you price is going to go up but equilibrium quantity cannot be determined because they're having opposing effects so that's my advice to
• 13:00 - 13:30 you for the double shift problems don't do them as as double shifts do them as single shifts do a single shift for demand do a single shift for supply see where they both agree then you can say okay i can tell about that variable where they have opposing effects on the variable that would be the answer that you would give for indeterminate and you give a chance to practice these on the homework