Understanding Supply and Demand

BELL RINGER:  On a piece of paper, answer the following under "Bell Ringer" and then put them in the 3rd Block Bin:

1. Refresher: What is the difference between scarcity and shortage?
2. Think about your fictitious business and explain what product or service is supplied by you, and who demands that product or services.
3. What does the Latin phrase "ceteris paribus" mean?
4. Looking at the Supply & Demand graph (right), which of the lines is Supply and which is Demand?

Supply and Demand
As you would probably imagine, Supply and Demand are concepts that are the cornerstone of Economic Theory.  The entire concept of Economics is the study of how and why people choose to buy the things they do.  So much, in fact, that out of the 61 Tennessee Economics Standards, 6 of them specifically involve Supply and Demand.

• E.11 Define supply and demand, and provide relevant examples. (E)
• E.12 Describe the role of buyers and sellers in determining the equilibrium price. (E)
• E.13 Describe how prices of products as well as interest rate and wage rates send signals to buyers and sellers of products, loanable funds, and labor. (E)
• E.14 Explain that consumers ultimately determine what is produced in a market economy (consumer sovereignty). (C, E)
• E.17 Identify factors that cause changes in market supply and demand. (E)
• E.18 Demonstrate how changes in supply and demand influence equilibrium price and quantity in the product, resource, and financial markets. (E)

In addition to supply and demand, we will be working on the following standards:

• E.2 Explain how consumers and producers confront the condition of scarcity, by making choices that involve opportunity costs and tradeoffs. (E)
• E.4 Describe how people respond predictably to positive and negative incentives. (C, E)
• E.5 Explain that voluntary exchange occurs when all participating parties expect to gain. (E)
• E.23 Compare and contrast the following forms of business organization: sole proprietorship, partnership, and corporation. (E)

Watching the video clips, answer the following questions:  Demand and Supply Explained
Demand:

1. When the price goes _______ the quantity demanded goes _______.
2. A Demand Curve is a ________________ sloping curve.
3. What is the Substitution Effect?
4. What is the Income Effect?
5. What is the Law of Diminishing Marginal Utility?
6. The Demand Curve shifting left indicates a _______________ in quantity demanded.
7. The Demand Curve shifting right indicates a ______________ in quantity demanded.
8. What are the 5 Shifters of Demand:
1. Tastes/Preferences: ____________________________________.
2. Number of Consumers: ____________________________________.
3. Price of Related Goods: ____________________________________.
4. Income: ____________________________________.
5. Expectations: ____________________________________.
9. What are "substitutes"?
10. What are "complements"?

A clip demonstrating the Law of Diminishing Marginal Utility: Matilda: Bruce Bogtrotter
Supply:

1. When the price goes _________ for a product, the quantity producers make will __________.
2. A Supply Curve is a ________________ sloping curve.
3. The Supply Curve shifting left indicates a _______________ in quantity supplied.
4. The Supply Curve shifting right indicates a ______________ in quantity supplied.
5. What are the 5 Shifters of Supply:
1. Price of Resources: ____________________________________.
2. Number of Producers: ____________________________________.
3. Technology: ____________________________________.
4. Taxes & Subsidies: ____________________________________.
5. Expectations: ____________________________________.
6. What happens to supply for a product when the price increases?  ______________.
7. What is the Market Equilibrium ____________________________________.
8. What is a "Surplus"? ____________________________________.
9. What is a "Shortage"? ____________________________________.

Discussion & Short Answer:

Your Business:  
Using your virtual/fictitious business, describe how the following Shifters affect Demand in your business:

1. Tastes/Preferences: 
2. Number of Consumers: 
3. Price of Related Goods: 
4. Income: 
5. Expectations: 

Using your virtual business, describe how the following Shifters affect Supply in your business:

1. Price of Resources: 
2. Number of Producers: 
3. Technology: 
4. Taxes & Subsidies: 
5. Expectations: 

Download a worksheet here: WORKSHEET

Next we will have a short discussion and share some of the progress we are making on our Business Project and our Making a Difference project.

Business Project:

• What business have you come up with?
• Where would you locate your business?
• What is your target demographic?
• What design considerations (logo, colors, etc.) will you use?
• Will your business be a sole proprietorship, a partnership or a corporation?

Making a Difference:

• What is an idea you think would make your community better?
• What is an idea you think would make our school better?
• Did anything surprise you as you began thinking about how you could make a difference in your community or in your school?
• How might any these changes have an effect on the economics of your community?