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so the way we use supply and demand analysis is to study events and and what what happens in the market and given these events are happening in what direction are these events going to cause price and quantity and markets to move and in you want to really adopt a methodology to conducting these event studies because if you start flipping around steps or if you you get muddled in your thinking it's easy to fall into an infinite loop and just get nonsense so we do a lot of practice and be really really careful about how you implement these steps all right well here are the steps I've got these pictures are for a particular event I have in mind but first you draw the initial equilibrium ok that's just whatever whatever market you're studying draw a situation where nothing else is changing nothing else wants to change that's never true in a real sense in the real world but you want to isolate in on the event you're studying and then think about the event and think carefully and ask yourself the question does the event affect supply or does it affect a man sometimes you'll get an event that affects both you know arguably the one I'm going to have could it could affect both but I'm going to make some assumptions to it solve that problem but typically I'll give you a supply event or a demand event or sometimes I'll give you two events one supply one demand to demand event to spy anyway sometimes I'll give you multiple events but I'll try to avoid giving you events that would affect both supply and a man that it could happen I mean it could happen in the real world that one event affects both functions the other thing I'll tell you is always with your graphical analysis give me a little bit of a narrative tell me how you're thinking because let's say I'm thinking about a problem one way but you are thinking about it a different way if you explain your rationale even with just a sentence or two and then go on to conduct the analysis the situation you're thinking through you know I'll give you a full credit even though it might be a different situation than what I had imagined but but only of you tell me your rationale because otherwise I can't I can't I thought got nothing did base such a generous grade on alright so think it through does this event affect supply or demand usually is just 1 so 1 think it through as an underlying factor affecting the supply curve is that changing or is it an underlying factor affecting demand changing only the function whose underlying factor is changing is going to shift the other one stays constant even though we're going to get a change in quantity demanded or supplied on the function that doesn't change we'll see you'll see what this means in a moment alright then then think before you draw does the event increase or decrease the function that's affected either supply or demand only then draw your new curve and then only after that draw the new equilibrium where is the new supply curve if it's a supply event across the old demand curve where is the new demand curve across the old supply curve if it's a if it's a demand event shift that function look at the new equilibrium this is step 5 label that new equilibrium and done done just just follow these steps don't get yourself into a cycle where you say oh well demand increased so that the we got an increase in quantity supplied and an increase in in price we'll see why in a moment so but then the price went up so Jesus client a man is going to go down you know you can you can fall into this loop don't do it all right let's let's get to it I think we all needed a break from the Pakistani cucumber market so I've got a new jersey shore vacation and that there's some let's draw the initial equilibrium this is the equilibrium before let's say in 2012 this is going to be I'm going to timespan let's say 11 22 to 14 all right 2011 to 2014 all right initially but the event is going to be hurricane sandy as the opening picture probably include you in to initially there's some market price some market quantity nothing has happened all right well no okay insanity happens it's that was a winter storm but the next summer comes around and say these vacations are only in the summer and now you know it's the next summer I think that storm happened in 2013 we had to happen I think of 2012 maybe anyway these years all blend together anyway we're now as 2014 the the hurricane has happened and is this a supply event or a demand event well you know demand event there's just as many people on New Jersey they like on a beach just as much their income hasn't really changed you know there's in terms of how much they'd be willing to pay for a nice beach vacation that wasn't didn't take too far a drive well that that's all stayed the same but what's changed is that on the supply side there's just a lot of the beaches in New Jersey we're just wiped out gone or destroy to the point where they aren't going to be able to host vacation vacationers for some years to come so there's going to be a supply event and it's going to be a supply decrease so let's let's now that we have that in mind let's draw that so supply is going to change and supply is going to decrease so I'm drawing a new supply curve I'm going to draw an arrow to the left it decreases to the left not down it's no even though we say supply fell it shifted to the left so hurricane Santa sandy and then we have so that I cryptid the curve I draw the new market price the new market quantity and notice that we can know that this event is going to drive up the price of a new jersey shore vacation and there's going to be fewer of them taken in 2014 than there were in 2011-2012 so that that's how you do it and if you have another event let's go back remember what I did was I drew the initial equilibrium I thought it through completely before I started drawing I I did I concluded it was a decrease in supply and only then did I draw the shift and then I didn't overthink I just labeled the new equilibrium and declared myself done that's real important step there if you have another event let's say New Jersey citizens income went down in the Great Recession actually well yeah let's not um I think it too much if you if you have a second event just think it through the steps 2 through 4 again let's go ahead and add another event actually what the heck the this fall and income on the part of New Jersey citizens that's a large share of the people that vacation on the New Jersey Shore is give me a demand event they can afford fewer vacations this is going to decrease demand will shift the curve label the new equilibrium if you have to to events I wouldn't label the new equilibrium till you're all done mapping you that's not the way it's going to work here so now we have the second event and let's change our color let's make it blue just because that's different and I'm going to draw this event in a particular way now we're going to have this fall in demand I'm going to draw that shift and draw that arrow New Jersey citizens income falls and then I've got this new equilibrium right it's going to be where the new demand curve intersects the new the new supply curve and it's going to be right there and I've drawn it so price doesn't change at all and I did that for a particular reason when we have two events in this case we have a supply decrease and Adam and decrease when we have two events there's always going to be either the price or the quantity effect that's uncertain and the way I remind myself of that is just to draw it so the the new price is exactly the same as the original price so I can definitely say that the combination these events is going to reduce New Jersey Shore vacations but is the price going to go up well would if the supply effect was bigger than the demand effect or is the price going to go down well the price could go down if the demand effect is bigger than the supply effect so the price effect is indeterminate we don't know what's going to happen to price in this case sometimes you get a combination of events its quantity that you can't tell there's always going to be one of those you can't tell if there's a combination of events do some practice to convince yourself of that made with doodle cast pro