>> [SOUND] Okay. So, we look at price.

Now, let's look at the other determine of demand supply the price of the inputs.

>> We think about the price of the inputs a good example when we talk about

tomatoes will be >> gasoline,

>> right? You need gasoline to, to power your tractor to. You need gasoline

to power your car, to take the tomatoes to the farmers market from the farm.

>> So clearly, gasoline is an input that you're going to need in order to

produce tomatoes. >> So, imagine if you're a farmer and

the price of the gasoline >> change.

>> Let's say, the price of gasoline increases.

>> Well clearly, you're going to have to pay more money to transfer your

tomatoes from your farm to the farmer's market, and you're also going to have to

pay more money to power the tractor to plow the field to produce the tomatoes.

>> So, every tomato that you produce now, because the gasoline is, is more

expensive, will cost you more. >> And remember, what we said the, the

supply side of the market is a cost side of the market.

>> So now, if the price of gasoline is higher, the cost of producing those

tomatoes for you will also be higher. >> So, if the cost of producing

tomatoes is higher, how is that going to effect the supply in this supply schedule

that we have? Well,

>> one possibility could be that perhaps, the price, all the cost of your

tomatoes will go up, let's say, by exactly, I don't know $2, right? So now

when the price is zero, you still produce nothing. But when the, when the price is

2, >> it's still too, actually too cheap

for you to produce because the, your costs are actually higher.

>> So, what I'm saying here is that [COUGH] since your costs increased,

you're going to need a price of $4 in order to be able to cover your costs. In

order to sell any tomatoes. >> And now, that transfer across the

whole supply, that when the price is six >> actually, [NOISE]

>> so let, let's start, let's say that it's 2 so we have, make this consistent

with the other one. >> And then when the price is 6, you

can produce 4. When the price is 8, you do 6, when the price is 10, you do 8, and

when the price is 10, you do 12. >> So, you were forced

>> to cut some of the supply of tomatoes because it costs you more to

supply tomatoes. >> In essence, what's happening is that

since it, it's more expensive for you to supply tomatoes, because you have to pay

more money in the farmers you bring your tomatoes to the farmer's market, you are

going to have to pass some of that increased cost to the consumers by

increase, by requiring a higher price in order for you to sell.

>> So, the whole structure of your supply changed, and you can see that in

the table. And see, again the structure of your

supply change, that means that your whole supply demand will actually change, too.

>> And now, you're actually saying, well, 0,0, when price is 2, you're also

at 0, >> [SOUND] right? And when the price is

4, now you're at 2, so now you're here. >> And when the price is 6, you're at

4. >> So you see that now you have a whole

new supply which is going to be everywhere to the left of the original

supply curve. >> [SOUND] All right.

>> And I'm going to cheat here a little, and I'm going to make this point

like really big to, [SOUND] there. It passed through there.

>> so what we have here is that when the, a change in the price of the inputs,

when the price of the inputs change, it will affect the whole structure of your

supply, because your costs increase. >> In this case, the price of the

inputs went up. >> The cost of producing tomatoes

increase, that means a whole new column. And that means the shift of the supply

curve to the left, >> right? So a change, again, the what

if, the price of the inputs changes? If the price of the inputs changes, your

supply shift. >> And if the cost increases, your

supply would shift to the left. >> And the opposite would have happened

if your price of gasoline goes down. >> If the price, if the price of

gasoline goes down, then it's cheaper for you to provide tomatoes.

>> And you could be able to sell tomatoes even at a lower price than

before. >> You will pass some of those savings

to consumers and you will make some more money in the process.

>> So, when the price of your inputs go down, your cost decreases and you would

shift your supply to the right, >> right? So, this happens when

>> the cost of producing anything goes down.

>> Now one thing that you have to be careful here, I don't know if you realize

this, is that I would not recommend to you to use the language, the supply curve

goes up or the supply curve goes down. >> Because that actually is is, is the

opposite of what's happening. >> If you think about this, for example

>> in this case the supply of tomatoes went down because it's actually, it's

more expensive so there's going to be less supply that would be

>> priced. >> But if you look at the, the diagram,

the curve shift up. >> So, if you, if you tend to use the

language, the curve, the supply curve goes up when the supply curve when the

cost increases, that'll be incorrect. >> So, what you should do is if the

cost >> increases, the supply curve shift to

the left. >> If the cost decrease, the supply

curve shift to the right. >> So, use left and right instead of up

and down when you're talking about the diagram.

>> Alright. >> So, let's do one more let's do the

change in technology and let's do a little page for that.

[SOUND] >> Produced by OCE Atlas Digital Media

at the University of Illinois, Urbana-Champagne.

[SOUND]

3.3. Price of an Input Changes

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