Video Chapter 3 (transcript)

"Hello, and welcome to this lesson on one of the most fundamental principles of economics—supply and demand. Whether you realize it or not, supply and demand shape nearly every aspect of your daily life. From the price you pay for groceries to the availability of housing, from global trade to your local farmer’s market—these forces drive how resources are distributed in a world of scarcity."

 

"At its core, supply and demand explain the relationship between how much of a product or service is available and how much people want it. When supply increases and demand stays the same, prices typically fall. When demand increases but supply remains limited, prices rise. This simple yet powerful principle affects everything from consumer behavior to national economies."

 

"Consider how supply and demand influence prices during a crisis. Think back to recent global events—when supply chains were disrupted, basic goods like food, fuel, and medical supplies became harder to obtain. As a result, prices soared. Conversely, when there is an oversupply—such as a bumper crop of wheat or a new technology flooding the market—prices fall."

 

"This principle is not new. In fact, we see evidence of supply and demand dynamics throughout Scripture. In Genesis 41, we read the story of Joseph interpreting Pharaoh’s dreams. Joseph predicted seven years of abundance followed by seven years of famine. What did Joseph do? He stored grain during the plentiful years—when supply was high—and distributed it wisely when supply dropped during the famine. This proactive approach stabilized the economy and saved lives. It’s a perfect biblical illustration of managing supply and demand over time."

 

"Joseph’s actions highlight an important lesson: wise resource management during abundance prepares us for times of scarcity. This is not just ancient wisdom—it’s the foundation of modern economic policy. Governments stockpile resources, businesses manage inventory, and consumers save for the future. Proverbs 21:20 reinforces this wisdom: ‘The wise store up choice food and olive oil, but fools gulp theirs down.’ As believers, we are called to practice foresight and stewardship in the face of fluctuating supply and demand."

 

"Let’s break down the law of supply and demand more formally. Supply refers to the amount of goods or services that producers are willing to offer at various prices. Demand, on the other hand, is the quantity of goods or services that consumers are willing to purchase at those prices. Where these two forces meet is called the equilibrium point—the price at which quantity supplied equals quantity demanded. Understanding this relationship helps us make informed decisions, whether we are setting prices, investing in markets, or managing household budgets."

 

"In today’s global economy, supply and demand are affected by complex factors—technological innovation, geopolitical events, and consumer preferences. But as Christians, we must also ask a deeper question: How do our economic choices reflect our faith? Are we using our resources to bless others? Are we advocating for fair pricing and ethical business practices? Micah 6:8 reminds us to ‘act justly, love mercy, and walk humbly with your God.’ These principles apply even in the marketplace."

 

"So, as we continue this lesson, think beyond charts and graphs. Consider how you, as a steward of God’s resources, can influence the world by applying the principles of supply and demand with wisdom and integrity."

Let’s discuss some central concepts of economics. 

In a market economy, the interaction of supply and demand determine the price and quantity of goods and services. Supply represents the producer or seller’s side of a market. It is the quantity of goods sellers are willing to sell at various prices. Demand represents the consumer or buyer’s side of the market. It is the quantity of goods buyers are willing to buy at various prices.

 

When modeling supply and demand, economists frequently use graphs, tables, and equations. A supply curve is a graph showing the relationship between the price of a good (plotted along the vertical axis) and the quantity sellers are willing to supply at each price (plotted along the horizontal axis). Supply curves can show supply for a single seller or aggregate supply for all sellers in the market. 

 

Supply curves can be straight lines or curves, and they are typically upward sloping. The curves slope upward due to something called the law of supply—an observation that sellers typically want to sell more of their product at higher prices and less at lower prices. You can express a supply curve as a table known as a supply schedule or an equation where quantity supplied (Qs) is a function of price (P).  Here is an example of what a supply curve would look like on a graph.  

 

A demand curve is a graph showing the relationship between the price of a good and the quantity consumers are willing to buy at each price. Demand curves can also be straight lines or curves, but they are typically downward sloping. You can draw individual demand curves representing the demand of a single consumer, and you can all draw market demand curves showing aggregate demand across all buyers in the market. Demand curves slope downward because of the law of demand. This is the observation that buyers are usually willing to buy more at lower prices and less at higher prices. Their response to price is the opposite of sellers. You can express a demand curve as a table known as a demand schedule or an equation where quantity supplied (QD) is a function of price (P).  Here is an example of a demand curve.

 

So, how do we understand the Law of Supply and Demand?  Well great questions!! 

When we put supply and demand together, we can estimate the price and quantity we expect to emerge in the market. We can do this several ways. But the most basic model of supply and demand is the model of perfect competition. This is a model you’ll frequently use in introductory economics courses, and mastering it will help you understand more complex market models. In the model of perfect competition, the market-clearing price and quantity (also called the equilibrium price and quantity) are determined by the intersection of the supply and demand curves.  This graph would represent this equilibrium price. 

 

The point of intersection between the supply and demand curves is called the competitive equilibrium or market equilibrium. If you trace this point down to the horizontal (quantity) axis, you’ll find the equilibrium quantity. This is the quantity of goods that will be bought and sold in the market. If you trace the competitive equilibrium over to the vertical (price) axis, you’ll find the equilibrium price. This is the price that will be charged in the market. The figure above shows a hypothetical market for organic pears. Notice how market demand and market supply curves are sloping in opposite directions following the law of supply and the law of demand. The competitive equilibrium in this market is at point C. If we trace this point down to the horizontal axis, we find an equilibrium quantity (Q*) equal to 150,000. If we trace the point over to the vertical axis, we find an equilibrium price (P*) equal to $1.20 per pear.

What Are Some Factors Affecting Supply?

Equilibrium price and quantity change in response to changes in supply and demand. The following are factors that can affect supply:

Changes in the Cost of Inputs in Production

If the price of labor or the materials used in production change, supply will change. Ceteris paribus (all else being equal), supply will increase when the cost of production falls. If an input price increases, supply will decrease.

Changes in Technology

Technology is the process by which firms create a good or service. When technology improves, sellers are able to produce their products more efficiently. This causes supply to increase. If there is a negative technological shock, supply will decrease.

Natural and Political Events

Natural and political events such as storms, pandemics, abnormally good or bad weather, sanctions, and wars can affect the supply of goods and services. The impact of these events will depend on the good or service being sold.

Government Interventions in the Market

Government policy impacts supply positively in some cases and negatively in others. Governments can intervene in markets through policies such as taxation, subsidies, regulations, price ceilings, and price floors.