Demand
So demand was the first thing you learn from khan academy (like supply and demand). This was probably the easiest thing to understand. Basically if all variables stay the same, as the price of a product goes up the quantity demanded goes down. And at first that might be confusing but when you think about it, it is basically saying that as a price goes up less people will want it. As simple as that.
A common misconception about demand it that it is a number. It is not. Demand refers to a curve, an equation. This is what demand looks like:
Supply
The next couple videos were all about supply. And this is where things got complicated. As the price of a product goes up the quantity produced will go up. As this is basically saying that in the apple market, the market price for apples goes up to about $4 a pound. Apple producers will respond to this by saying that they should produce more apples (make more money). So the supply quantity (the amount of apples produced in the future) will increase. And here is the supply curve:
So lets assume the price of apples on the market is 5 dollars a pound. As a producer I want to make more money so I will respond to this by focusing on making apples and producing more. So next grow season I will grow 60,000 apples. If the price of apples goes down to $1 I will produce only 12,000 apples next grow season and maybe focus more on other produce like grapes.
Equilibrium
So supply and demand is usually graphed on the same axis and is used by companies to figure out how much to produce and what you usually find is that the price and quantity will usually hit a point of equilibrium. Ill explain:
So lets assume the cost of apples increases to $5. In response the apple producer will make more apples, 60,000. But if we move our view over to the demand curve at $5 for apples we see that at that price only about 10,000 apples will be sold. So essentially this is a surplus of 5,000 apples. These apples will go bad and the company will lose money.
So in response the company lowers the price to $1 an apple. They know they wont be making too much money so they produce only 10,000 apples. Now if we look at the demand curve we see that at $1 people want to buy 55,000 apples. But only 10,000 was produced. So now there is a shortage of apples.
Eventually the company will meet the point where the two curves intersect and that is considered the point of equilibrium. At that point the price is enough so that the quantity demanded and the quantity supplied will be the same. That makes for a happy company :).
Oil prices
The last thing I leaned was oil prices and how oil and gas are connected and how their price is driven. Im not going to dive into all of it because it is a lot to explain but I recommend you guys watch them.
It seems like you have learned a lot so far which is great and Khan Academy has been helpful. Supply and demand seems like a good start for your project and I look forward to seeing what else you learn. The pictures were very helpful when you were explaining things because it made some unfamiliar topics more understandable.
ReplyDeleteJoseph,
ReplyDeleteIt is great to see how into it and how well you know everything that you have learned. One thing I can relate to is something that the brilliant professor Mr. McDaniels said. He talked about how the meeting of supply and demand for video games is 60 dollars and that is the perfect price. I can see your motivation as knowing how money flow works and that is such a cool concept. Keep plugging along.
Dave