About this video
Using a made-up SAL KHAN trading card, Sal explains supply and demand. When an influencer makes lots of people want the 1,000 cards, the card becomes scarce and the price goes up; printing 10,000 more raises supply and the price comes down; destroying cards lowers supply and the price goes up; when the card goes out of fashion, demand drops and the price falls.
You'll be able to
- explain what supply, demand and scarcity mean.
- predict whether a price goes up or down when supply or demand changes.
- give real-life examples of supply and demand, like fruit or collectibles.
Key words
- supply
- How much of something there is to sell or buy.
- demand
- How much, in total, everyone wants something.
- scarcity
- When there is not enough of something to go around for everyone who wants it.
- price
- How much money it costs to buy something.
- resource
- Something useful that people want and use, like the cards in Sal's example.
Transcript
- [Narrator] So let's talk a little bit about supply and demand. So let's say a trading card company decides to introduce a new card called SAL KHAN Card. And I actually had an artificial intelligence, I just told it to make a trading card based on me. It's very flattering, inspire knowledge, summon understanding, create learning opportunities.
Yes, I'm very flattered. And let's say that the company creates a thousand of them, creates 1000 of these cards. And they sell them for $1. So if you wanted to buy one of these, the cost to you would be $1. Now, they stopped printing after they do a thousand. And let's say that some social media influencer starts talking about how they are collecting these cards, and how awesome they are and how happy they become.
Every time they look at their SAL KHAN card, they just think about inspiring knowledge and summoning understanding. What do you think is going to happen to the price of that card? Well, you could imagine a lot more people are going to want that card. So when people talk about demand, that is how much in total everyone in the world wants that thing.
Now you might say, well, what about the price? I can't buy it from the person who originally printed it. What do you mean the price? What do you mean how much it would cost me? Well, you might not be buying from the original printer that made this card, but you could buy it from someone else.
Let's say that this is someone who has the card. We have the card right over here. And let's say this is someone who really wants the card, they watch that social media influencers post. What did you think they were gonna do? Well, there's a bunch of these people now, because they've all saw how amazing this card is, so they might be bidding the price of this card up.
So this person might say, I'll pay you a dollar. This person, I'll pay you $2. This person say, okay, I'll pay you $5. And this person says, done. And they will get the card. And so in this situation, you could imagine that the price will go up. Now what we're seeing here is something called scarcity.
And let me write that word down. Some of you might have heard it before. When something is scarce, that means there's not enough of it to go around. And in the example that I just showed, there's more people who want the card than there are cards. There's more than a thousand people who want a card.
Maybe they want more than one card each. So this is a situation of scarcity, and prices are a way to determine who gets the thing. Who gets the resource in a time of scarcity? Well, let's say that now, the card manufacturer, well, before that even happens, well yeah, let's say the card manufacturer says, wow, they're selling for $5, we should start printing these again.
And so they print another... Let me write this down. They print another 10,000 cards. So one way to think about it is, supply of the cards just went up. What do you think is going to happen? Well, the price is going to come down. Yes, there still might be a lot of people who want it, but there's also a lot more people who have the cards, or each person has more of these cards.
So this person could still go to someone else. So they might not bid the prices up as high. So maybe the price comes down to $2. Now, let's say we have another scenario where, you know the printer stopped printing it after 10,000. And let's say there was someone who hoarded all of the cards or maybe they had 950 cards over here.
So they had 950, so times 950. So they're just trying to... Some people say corner the market on these cards. And they weren't that smart about where they stored them. They stored them in their bathtub that they thought no one would use. And then their mom comes over and decides to take a shower and didn't notice those 950 cards in the bathtub, and just fills it up and destroys those cards.
So what just happened? Well, in this situation, the supply went down. Well, assuming demand is about the same, what do you think's gonna happen to the price? Well, now the price will go up again. And now you could imagine maybe the card company prints more so that the supply goes up again.
And maybe those social media influencers also, actually, no, let's say the card company doesn't print anymore. But let's say the social media influencers starts saying, you know what? The SAL card's no longer fashionable. It's no longer cool, in fact, I would be embarrassed to have it in my house.
And there's now a new card that you might want buy. What do you think's gonna happen? Well, in that situation, the demand would go down, even though a lot of these were destroyed and there's only 50 left, maybe no one wants them anymore and so no one's willing to buy them.
And so in that situation, the price goes down. So this is just an example, but you'll see supply and demand all over the place. You'll definitely see it for things like collectibles, but you'll see it for fruit. You might notice the price of certain fruits goes up, and down over the course of the year.
That's usually based on what fruits are in season and supply. But it might also be demand, maybe a new report comes out that blueberries are super duper healthy. Well, that might increase the demand, and that might increase the price, especially if there's not enough supply for it.
You would see it in the stock market, you would see it in houses. You see this notion of supply and demand, and scarcity and prices everywhere.
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