00:01
So here we're asked to analyze a market for a discontinued item, right? production of these items stop.
00:07
Fewer people want them.
00:08
So what happens to equilibrium, price, and quantity in this market? well, it's very hard to tell, right? first of all, the supply curve should be expected to reduce dramatically, right? we should expect to have big decreases in supply because, as usual, we should expect, you know, these things are no longer being manufactured.
00:30
So the supply curve doesn't include manufacturers.
00:32
It only includes people who have stockpiled them or horded them or kept them in a garage somewhere or are selling them used.
00:39
So just because there's discontinued doesn't mean there's no supply, right? there can be supply and warehouses, supply and used goods, you know, and used items, et cetera, et cetera.
00:48
But we would expect supply to move significantly to the left, right? so that's for sure, right? supply is going to go left.
00:56
It's hard to imagine a world where supply doesn't go left literally manufacturing here is stopping but demand should also be going left right these things we're told these things are going out of style right where the question says literally demand for them dropping right so we're also going to say that demand is going to go left as well because we're literally told that demand is going to go left right and so i'm also going to say that demand goes left because these things are out of style unwanted well what does that do relative to the initial equilibrium value of quantity and price.
01:34
Here, you see that both effects are pushing the quantity to the left.
01:39
So quantity should be going down a whole lot, right? the supply is reducing quantity.
01:45
The demand is reducing quantity.
01:47
So the way i've drawn it here, right, at this new equilibrium, we have a much less quantity.
01:54
But the price here has barely changed, right? the new price has barely changed because the price effects are operating in different ways, right? the reduction in demand is driving up the price.
02:06
The reduction in supply can be driving down the price, right? and so the price effects are mixed.
02:15
So the price effect can go either way, right, depending on if demand is dropping by more or less than supply, right? it becomes an empirical question, right? how many of these goods are in warehouses? how many of these goods are going to be sold used? how out of style and unwanted are these items, right? but there's no good reason to think that the price of discontinued items will necessarily go up or down.
02:37
It depends on these relative shifts...