004：What Determines the Price of Strawberries Sold Near the Great Wall

【提示】

本课程是中英双语授课，您可以点击“专辑--节目”选择中文或英文课程进行收听，英文课程由蒂莫西·泰勒本人讲述，对应中文内容是由专业人士完成。谢谢您的订阅，希望您能有所收获。

【英文音频稿】

Hello, Himalaya subscribers. My name is Timothy Taylor.

Today we're going to discuss what determines price, supply and demand for strawberries near the great wall? When I had a chance to come out to Beijing earlier this year and give some lectures, I had a free afternoon in my schedule. So a few of us took advantage of the time and made a trip out to visit the Great Wall . It was interesting in so many ways.

On the drive back, we drove past a number of trucks parked by the side of the road with people who are out selling strawberries. Well, I like strawberries. Of course, I wanted to stop, but as an economist, I immediately think to myself, what determines the price of these strawberries?

Well, at some basic level, if there is someone willing to buy and someone willing to sell, well, that's the price. But decisions about buying and selling always depend on a broader context. How many people want to buy? How many people want to sell? You need to think about demand and supply and how they fit together. So let's tackle the subject in three pieces. First, what do economists mean by demand? Second, what do economists mean by supply? And third, how do demand and supply interact to produce equilibrium?

So, first question, what do economists mean by demand? For economists, demand refers to a relationship between the price of something and the quantity demanded of that something. For example, what's the relationship between the price of strawberries and the quantity demanded of strawberries? If you ask the question this way, the answer seems pretty obvious to most people. If the price is high, then the quantity demanded will tend to be low. If the price drops lower and lower and lower, the quantity demanded will slowly rise higher and higher.

You might even hear people talk about a demand curve. All that means is someone took the time to draw out a graph with this information. Imagine a graph with the demand on the horizontal axis, the quantity demanded and the price on the vertical axis. Demand will then be a downward sloping line or curve. It will show that as the price gets higher and higher, the quantity demanded gets lower and lower. Now, this idea of demand doesn't just apply to buying strawberries by the side of the road. It's broadly true for all sorts of things that are bought by consumers.

It's true also when business buys goods and services to use for production. So let's dig into this demand relationship a little more closely. What are the actual reasons why quantity demanded tends to fall when the price gets higher? Well, economists give two big reasons. One is a substitution effect. That is that as the price of something you buy goes up, people shift to other items. So if the price of pork goes up, then people will shift to buying other meat or fish or vegetables. Now, for some goods and services, it's pretty easy to substitute something else. For example, if the price of pork goes up, it's not hard to find some other foods you might substitute.

But in other cases, it can be more difficult. For example, if you need a certain drug to stay healthy and there's no other drug that works quite as well, it can become hard to substitute. The other main reason that the quantity demanded tends to fall with a higher price is called an income effect. The income effect points out that when the price of something goes up, the amount of income you have has less buying power.

You can't buy the same amount as you did before, because you have a tradeoff. There's scarcity. And as the price goes up, you have to buy less of something. And it could be less that good or less of some other good. But no matter what, as the amount, as the price of something goes up, the buying power of income will decrease. For people learning about economics, there's often some confusion between demand and quantity demanded, because economists use those terms in very specific ways. Just remember, that quantity demanded refers to a specific amount that's desired at a given price, but a demand curve is a relationship between price and quantity demanded. To understand this difference, it's useful to think about the question what makes demand shift.

Well, one example would be income. If there's greater income for people, that would mean more quantity demanded at every price. Or if population goes up, a larger number of people would mean more quantity demanded at every price. Demand can be affected by a shift in tastes. If, for example, a lot of people like something, at least at more than they did yesterday, then that would tend to mean that more would be demanded at every given price and of course, if people decide they don't like something, if taste moves in the other direction, then there would be a lower quantity demanded at every price.

The price of substitute goods can also affect demand. For example, think about what happens to the demand for pork, if the price of fish goes way up, if fish is a substitute for pork and the price of fish goes up, then people might substitute away from fish and buy more pork. And in any given price, the demand for pork and the quantity demanded would rise. So without thoughts about demand, let's now shift over to supply. And how do economists think about supply? When economists speak of the supply for a good, again, they're referring to a relationship between quantity supplied and price.

And if you think about this for a minute, again, you should have some good intuition for how it works. If you're thinking about selling strawberries by the side of the road and the price is higher, you're more likely to go out and sell some strawberries. If you're thinking about selling strawberries and the price is lower, then you're less likely to go out and do that. Of course, this general relationship doesn't just apply to strawberries. For most goods and services, if the price goes up, suppliers will want to provide a larger quantity. It's a chance to earn more. If price goes down, suppliers will want to provide less.

You sometimes hear people talk about a supply curve. And again, it's just taking this idea of supply and putting it on a graph. You think about a graph that has the quantity on the horizontal axis and the price on the vertical axis. Then a supply curve slopes up, a higher price means a higher quantity supplied. I hope this makes intuitive sense. But again, economists like to dig a little deeper. They point out that the reason that there is usually a higher price leads to a higher quantity supplied is both because existing producers want to produce more when the price is higher, and also because new producers might want to enter that market as well.

To think about the relationship between quantity supplied and supply, let’s think about what causes supply to shift. A supply shift means that at every given price, a greater quantity will be supplied. What would cause that to happen? Well, one example would be technology. For example, if technology gives you a cheaper way of producing something, that would mean a greater quantity would be supplied at every given price. Weather can also affect supply for certain products, like agricultural products. You could imagine that better weather would mean more supply. There would be a greater quantity supplied at any given price, whereas terrible weather, like drought or storms, could lead to a situation where there was a lower quantity supplied at any given price.

Supply can also be affected by input prices. Imagine, for example, that a firm uses a lot of oil or a lot of steel. If the price of those inputs goes up, then the quantity supplied of the output for that given price will fall. Now I want to take these ideas of demand and supply and put them together. Think about them interacting at the same time. How do demand and supply interact to produce an equilibrium? We'll explain what equilibrium means as we go along. Let's start off by thinking about a certain goods or service. Think strawberries. If you want, and the price is very low. At a very low price, the quantity supplied will be low, and the quantity demanded will be high.

But as that price slowly rises,the quantity supplied starts going up and up. And the quantity demanded starts coming down and down. At some price that's out there, the quantity demanded will equal the quantity supplied. At that point where quantity demanded equals quantity supplied is the equilibrium. That's the equilibrium price, and it's an equilibrium quantity too. Now economic forces built into the very idea of supply and demand will tend to push toward this equilibrium price and quantity. Imagine a situation, for example, where price is above the equilibrium.

And because it's above the equilibrium, the quantity supplied will exceed the quantity demanded, which will tend to be much lower. There's extra stuff people tired trying to sell strawberries, say, ah, look, we've got more than we can sell. We need to get rid of these strawberries. And so the sellers start reducing their prices. As the price comes down, people demanding strawberries buy more and more. So you think of a situation of somebody selling strawberries. If the price was above equilibrium, there will be pressure for that price to drop down as the day goes along and move toward the equilibrium price and equilibrium quantity.

Now think about the opposite situation. Think about the price being below equilibrium, the price being low. At that low price, the quantity demanded will be higher than the quantity supplied. Sellers become aware everything they put on the shelf is being bought immediately, so they start to raise the price to make more money. And as the price rises, it moves up towards equilibrium level. Our quantity demanded and quantity supplied are equal. Equilibrium price and quantity can be thought of as a point of balance, where there's no reason for prices to rise either higher or lower, because quantity demanded and quantity supplied are equal to each other.

Now, just to be clear, no one ever says prices are always at the equilibrium. It's just that the forces of supply and demand are pushing in the direction of the equilibrium price and quantity. Economists also sometimes say that the equilibrium is efficient, and when they say that they have a specific meaning in mind: an efficient machine has no wasted motion, no extra parts, and the economic equilibrium is efficient in a similar sense. If the price is above equilibrium for a long time, then the quantity supplied is above the quantity demanded. And goods are piling up on shelves with no one buying them. That's clearly wasteful.

If the price is below equilibrium, and the quantity demanded is higher than the quantity supplied, then buyers are waiting in line, hoping to buy goods that aren't there. And that's clearly wasteful, too. So efficiency at the equilibrium price and quantity just means that all the sellers willing to take the market price can find a buyer. And all buyers are willing to pay the market price can find a seller. Now, this might sound really abstract and not very practical.

But remember the under lying logic here. A demand curve, just means consumers are out there looking for the goods they prefer. And if the price drops, they buy more of them. That's pretty reasonable. And firms are out there thinking about, well, if the price goes up, we'll try and produce and sell more. That's pretty reasonable, too. And if those two pretty reasonable things are true, then people and firms people buying and acting as demanders, firms acting as suppliers are acting according to supply and demand model.

In the next podcast, we'll talk more about shifts in demand and supply, and how those shifts cause equilibrium price and quantity to rise and fall.

I’m Timothy Taylor. Thank you for listening to Himalaya.