ShmoopTube

00:00

And finance Allah shmoop What is positive Demand Shock Well

00:07

we think of shocks is bad things you know electrocutions

00:11

earthquake serial killers in our basement Shocking So what is

00:14

a positive shock Think about Frankenstein's monster Yeah the monsters

00:18

All dead flash sewn together Then he's struck by lightning

00:22

Suddenly he's up and you know stumbling around He's alive

00:26

Good old Frankie Mo Well he gets to be alive

00:29

That's a positive for him at least but it's still

00:31

disruptive Now we've got a seven foot tall green guy

00:34

bumbling around knocking stuff over scaring villagers and possibly throwing

00:38

kids in tow Lakes A positive demand Shocking economics works

00:41

in a similar way The shock that is aggregate demand

00:45

suddenly spikes Usually it means something happened to put a

00:48

lot more money into a market than was there before

00:51

Well on the small scale than a man shot can

00:53

be positive Like if you're a company selling a product

00:56

that suddenly sees a spike in demand shock there Yeah

00:59

that's a good problem to have It's good for business

01:02

that people want your stuff Okay Positive demand shock on

01:05

the individual or corporate level How about that I think

01:09

your bottled water when a hurricane is coming or that

01:12

new brand of sunglasses after a Kardashian wears them in

01:15

an instagram post or earplugs when the shmoop singers come

01:18

to town these things boost demand suddenly enough to skew

01:22

the market And while there can be negative shocks as

01:24

well like this is where demand suddenly plummets You've got

01:28

a popular vitamin like people buy them by the caseload

01:31

Mina report comes out showing that taking the vitamin everyday

01:33

for a period of time will cause a person to

01:35

grow scales and become a swamp monster Hug Sales plummet

01:39

Negative demand shock There are two basic ways a market

01:42

can react to these shocks Remember your basic economic training

01:46

and everything is supply and demand Well prices are a

01:48

way to keep these forces in balance If demand suddenly

01:51

skyrockets Well at least one of two things are gonna

01:54

happen and maybe both Well one prices are going to

01:57

skyrocket or two supplies they're going quickly run out Those

02:01

are shocks on a corporate level relatively small scale Well

02:05

there were also shocked at the level of the whole

02:07

economy Shocks involving aggregate demand Well it's Christmas time people

02:12

the economy has been sluggish so Congress decides to do

02:16

something about it They issue a stimulus bill Everyone in

02:19

the U S gets a check for a thousand bucks

02:21

from the government Thank you very much A sudden spike

02:24

in aggregate demand Well now there are a couple hundred

02:27

billion more dollars to be spent on Christmas presents The

02:31

hot toy this year Yes the arty doll As of

02:34

October it's retail Bryce was twenty five bucks each Stores

02:37

have plenty of them in stock supply and demand are

02:40

in balance But now the government stimulus hits bam Aggregate

02:44

demand spikes Prices for everything rise suddenly lots more cash

02:48

floating around chasing the same goods and just because the

02:51

government sent everyone a check While that doesn't mean the

02:54

toy company can make anymore Artie's inventories run out Well

02:58

secondary market for the toys opened up including sky high

03:01

prices Now you have to pay two hundred fifty dollars

03:04

three hundred four hundred five hundred dollars on eBay to

03:06

get the doll by Christmas Eve That's a positive aggregate

03:10

demand shock like Frankenstein's monster causing havoc wherever it goes

03:14

But don't worry the monster doesn't last long The aggregate

03:17

demand shock positive or negative can cause short term havoc

03:20

But in the long term the market works itself out

03:22

In the case of a positive aggregate demand shock while

03:25

overtime companies find a way to produce more of the

03:27

item to meet the new level of demand right these

03:30

by another factory or something like that or work overtime

03:32

or prices will just have to stay higher so that

03:35

aggregates supply an aggregate demand stay balanced Either way the

03:39

market eventually reaches equilibrium again and conditions adjust And well

03:43

in the long term everything gets back to normal well

03:46

as normal as they can be with a seven foot 00:03:48.49 --> [endTime] tall monster on the loose

Full Transcript