Download Supply and Demand

 Display understanding of Adam Smith’s insights into
market behavior
 Create and explain a demand table and a demand
curve
 Create and explain a supply table and a supply curve
 Explain how the laws of supply and demand affect
business
 Demand
 Supply
 Elasticity of Demand
 Surplus
 Income effect
 Invisible hand
 Price equilibrium
 Self-interest
 Shortage
 Specialization
 Substitution effect
 ***New Policy***
 Due to budget constraints, teachers are now allowed to
sell grades!!!
 Grades must remain on a bell curve
 Only 3 A’s, 4 B’s, 6 C’s, 4 D’s, and 3 F’s
Price
$10
$20
$30
$40
$50
$60
$70
$80
$90
$100
$200
# of Students
Revenue
 Profit Maximization ultimate goal
 Not a true business, grades come with no cost
 Need to find the best price to maximize revenue
 What price should the school charge?
 You have created your first demand schedule!
Term
Category
Characteristic
Demand schedule
Is a data table
that shows how much of a
good or service a person is
ready and willing to buy at
each price the market
offers
Demand
Is the measurement of
a person’s desire to have
some good or service and
the ability and willingness
to pay for it
Quantity Demanded
Is a measurement of
how much of the good or
service customers will
buy, taking into account
the increase or decrease
in demand due to
changes in price
 Is a company likely to sell more or fewer products if
they lower the price?
 If they lower the price and sell more units, will profits
will rise or fall?
 At what point should a company stop lowering the
price, and why?
 What variety and how much of a good should they
produce????
 Answer in the interaction between supply and demand
 Adam Smith “An inquiry into the nature and causes of
wealth of nations” published 1776
 Many consider the founder of modern economics
 On the next slide, what does “invisible hand” mean
 “One of the main points of the Wealth of Nations is
that the free market, while appearing chaotic and
unrestrained, is actually guided to produce the right
amount and variety of goods by a so-called ‘invisible
hand.’ If a product shortage occurs, for instance, its
price rises, creating a profit margin that creates an
incentive for others to enter production, eventually
curing the shortage. If too many producers enter the
market, the increased competition among
manufacturers and increased supply would lower the
price of the product to its production cost, the ‘natural
price.’”
 Download: Reading- Adam Smith’s The Wealth of
Nations
 During reading, underline any terms or sentences that
you do not fully understand
 Questions, comments, and concerns
 Quantity demanded for a particular product or service
rises and falls depending on its price
 Demand increase, price decrease and vice-versa
 How many were willing to pay $20 for an A?
 How many were willing to pay $100 for an A?
 Create 12 teams of high-level managers
 Each team’s CEO wants recommendations on how to
price a new product the company will introduce, using
demand schedule data for the industry to create a
demand curve graph to present to the company’s
board of directors
 The board of directors is going to help set goals for
company production in the coming year
 Demand curve is a graphical representation of
information from the demand table
 Show Demand schedules and curves
 Title both axis
 Data source
 Location of data points
 Represents demand at each price point
 Download: Worksheet- Demand Tables
 Fill out graph on worksheet based on company
information
 Each group must take the demand table data and
create a poster of their demand curve on excel
 When finished write 2-3 sentences describing the data
on the curve
 You will be analyzing your fellow peers’ demand curves
 Companies analyze this information in order to make
decisions about how to best operate within their own
industry as well as which industries offer the most
promise for future expansion
 Does opportunity cost for buyers increase or decrease
when the price of a product they are thinking about
buying goes down?
 Demand usually decreases as price increases, in part
because of the increased opportunity costs associated
with higher prices
 Download: Worksheet- Demand Curves Analysis
 Use information from the posters to answer questions
that firms regularly address as a part of doing business
and making critical decisions about what and how much
to produce
 Suggest reasons why these products and therefore
their demand curves look different from the demand
curves for other products
 Many factors impact demand
 Think about the shape of the demand curves you
produced in the prior activity
 Why do they slope downward?
 As consumers we find that the utility of each
additional increment of a good or service decreases, as
the amount consumed increases
 In order to get the consumer to buy that additional
chocolate bar, the seller would need to drop the price
enough for the consumer to think it’s worth it
 Download: Worksheet- Impacts on Demand
 The passages represent the two phenomena
economists see driving the curve’s downward slope:
the income effect and the substitution effect
 The income effect essentially means that we will buy more
when, because of a reduction in one or more prices, we feel
that we are getting more for our money; and also because,
when prices have been reduced, our money really does go
further, allowing us to buy more goods or services with it.
 When prices are lower we feel richer, and we may therefore
be willing to consume more. The converse of this is also
true: when prices are higher, we feel poorer (and are poorer,
because our money cannot buy as much), so we buy less.
 Think about the grades for sale experiment. If I lowered my
price 30%, would they consider buying an A in biology as
well?
 The substitution effect occurs when consumers react
to price increases for one product by switching to
cheaper products that are similar; or to different
products that, in general, do the same job (for
instance, taking a bus, not a taxi, to get somewhere).
These alternative products or services are called
substitutes.
 Going back to the grades for sale activity, would you be
willing to buy an alternative to the A, say a great letter
of recommendation or even an A on a mid-term
instead of an A for the whole class, if it were cheaper?
 Which of the two effects are in operation in each of the
scenarios in the worksheet?
 Be specific in the reading with examples
 Personal Examples
 Dollar menu
 No name clothing
 2 for 1 specials or BOGO
 Businesses are keenly aware of these consumer
behaviors and try to react to them through the way
they manage the other side of the economic
interaction from the demand side: that is, supply
 The demand curve, which shows that the lower the
price of a good or service, the greater the demand for
that product usually is
 Supply is different
 the higher the price, the greater the supply of that
product
 Just as consumers are always trying to get the most for
their money, so also are producers trying to sell their
products for the highest price possible
 When prices for a particular product go up, more of it
is produced
 Imagine that everyone in the room represents all
possible consumers for an mp3 player
 Download: Anticipation Guide- Supply
 Respond to questions with the prompt in mind
 The supply curve you will consider is the counterpart
of the demand curve that you worked with earlier in
analyzing consumer behavior
 Usually, all else being equal, the higher the price of a
good, the greater the quantity supplied by businesses
 Download: Worksheet- Supply Schedule and Curve
 Pay particular attention to the supply schedule for
chocolate bars
 The table showing the supply schedule for
manufacturers of chocolate bars represents how the
producers of chocolate bars look at the market
 The demanding CEO from the demand curve activity
is back and now wants to get a graph showing the
supply curve based on the schedule above
 The board will need this information to make their
recommendations about production for the coming
year
 Creating the supply curve for their specific industry is
very similar to creating the demand curve, with the
price on the vertical axis, and the quantity supplied on
the horizontal axis
 Compare to demand curve
 Similarities?
 Differences?
 What is the force driving both of these graphs?
 What might be the result if these two curves (for
supply and for demand) were presented on the same
graph?
 Compare the demand curve with the supply curve for
chocolate bars
 Predict what should be the final price and production
level of chocolate bars
 Turn into the vault assignment page
 Presentation
 Using a sheet of graph paper combine the demand
curve and supply curve for chocolate bars
 Color the areas that mark shortage and surplus with
different colored markers
 Indicate the equilibrium price on the graph and record
the value beneath the graph
 Why is it hard for a business to immediately find the
equilibrium point?
 Why this might lead them to over-supply the market
(a surplus) or underestimate the market demand and
end up having fewer products than consumer demand
(shortage)?
 A number of factors impact both supply and demand,
over which businesses have little control
 No matter how accurate a supply and demand curve is,
it only tells the businessperson what is going on at that
moment
 Supply and demand is constantly changing, business
must constantly be “taking the consumers’
temperature” in order to make sure that their supply is
in balance with the consumer’s demand
 Go online and research the rise of hula hoops vs. the
rise of silly bandz.
 In 1 page compare and contrast the story of each fad
product specifically focusing on the concept of supply
and demand.
 Double spaced, times new roman, 1" margins, include
a link to the resource you used.
 Remember the buying grades activity
 The changes in the demand table that they
constructed represent changes in the quantity of
grades demanded at any given price
 This corresponds to a shift of the demand curve along
the horizontal axis
 Such a change in the quantity demanded is different
from changes in demand owing to price changes
 For a demand curve, the lower the price, the more
consumers buy; however, changes in demand curves
can occur when some factor other than price causes
consumers to buy different amounts of the good or
service at each price than they would have bought
according to the original demand curve
 Factors that can shift the demand curve in this way
include changes in people’s incomes or the emergence
of new substitute goods
 Download: Learning Guide- Changes in Demand
 The graph represents a hypothetical grade sale
 The first line represents the original demand curve.
 The second line represents the new demand curve
after the school instituted a new policy, which
required a minimum GPA for graduation
 The school’s adoption of this new policy caused a shift
in the demand curve by generating greater demand at
any given price than there would have been with the
old demand curve.
 This was because, as more students recognized the
value of that additional A to their overall GPA, they
responded by being willing to pay a higher price.
 The third line represents yet another policy change,
which again shifts the demand curve, but in a different
way.
 In this case the school now allows all students to drop
their two worst class grades from their overall GPA
calculation (otherwise known as grade forgiveness).
Again, student demand for As changes
 This is different from a change in demand in response
to price changes, because the changes in policy
actually shift the demand curve to the left (when the
minimum graduation GPA policy is instituted); or shift
the demand curve to the right (when the grade
forgiveness policy comes into effect). This is quite
different from moving up and down the original curve
because of price changes
 One of the reasons it is so difficult for businesses to find
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and maintain price equilibrium is that markets are
constantly changing
New products are produced
New technologies are discovered and developed
New fads dominate and then fade.
Producer and consumer expectations change.
Government policies and international events play a role.
Because of this, successful businesses are constantly
studying the marketplace and the different factors that
influence increases and decreases in supply and demand
 Because of this, successful businesses are constantly
studying the marketplace and the different factors that
influence increases and decreases in supply and
demand
 Download: Scenarios- Changing Business
 Read the different demand and supply factors in Key
Terms: Factors of Change in Supply and Demand
 Work together for 10 minutes to decide which of the
factors influence the movement of supply and demand
for their scenario
 Some markets are more stable and less prone to large
swings in supply and demand
 Insulin
 The market is made up of people and thus open to
large and sudden changes just as our lives are.
 The role of businesses is to try and account for changes
and take fullest advantage of them when they come
about
 Create teams of two or three and that near the
beginning of this lesson you created an anticipation
guide. Review your guides and fill in the “I learned”
section.
 Work together on the “I learned” sections, building
logical conclusions from the prior class exercises.
 Share your findings with the class, building a list of
sound conclusions from these contributions on the
board for additional class-wide review
 45 mins
 Research and write a report on Adam Smith, his life,
his economic philosophy, and his impact on modern
society through the free market system.
 Look for links between Smith’s personal experience
and his view on how a society should organize itself
around its economic relationships.
 The report must draw from original source material
and that one of those must be his book An Inquiry
Into the Nature and Causes of the Wealth of Nations.
 Social Sciences: pick your top 5 dream universities and
then conduct research on the number of students who
apply and the number of students admitted.
 Take the data they have collected and explain why the
forces of supply and demand may be driving up the level of
competition both among students for places in the top
universities and among top universities for the best and the
brightest coming out of US high schools.
 The report should analyze the impact of a growing US
population and the increasing level of economic
competition that pushes both students and parents to do
everything in their power to get their kids into the best
schools.
 Earth Sciences: Governments and international
organizations such as the United Nations have come to the
conclusion that supply and demand can be used to solve
the problem of global warming.
 Research what is known as the “Cap and Trade” system for
carbon credits that has been instituted across Europe in an
effort to curb carbon dioxide emissions.
 The report must cover the history of the system and the
logic that underwrites it.
 Include an assessment of how well the program is working
and whether or not it might be instituted here in the US