1. Discussing Supply and Demand
Noted economist Jean Baptiste Say wrote the following about supply and demand in his Treatise on Political Economy.Finally, whatever be the general or particular causes, that operate to determine the relative intensity of supply and demand, it is that intensity, which is the groundwork of price on every act of exchange; for price, it will be remembered, is merely the current value estimated in money. The demand for all objects of pleasure, or utility, would be unlimited, did not the difficulty of attainment, or price, limit and circumscribe the supply. On the other hand, the supply would be infinite, were it not restricted by the same circumstance, the price, or difficulty of attainment: for there can be no doubt, that whatever is producible would then be produced in unlimited quantity, so long as it could find purchasers at any price at all. Demand and supply are the opposite extremes of the beam, whence depend the scales of dearness and cheapness; the price is the point of equilibrium, where the momentum of the one ceases, and that of the other begins.After reading the excerpt, please answer the following questions.
- How do increases in supply affect prices?
- How do decreases in supply affect prices?
- What prevents a producer from creating an unlimited supply of a product?
- What products or resources lend themselves to an absolute monopoly?
- What is the role of price in determining supply and demand?
2.
Business has been brisk at your hot dog stand. The weather has been good and a lot of hungry people have been milling around your spot in the parking lot. You have been cooking up hot dogs as fast as you can, and losing customers because your lines were too long. No doubt you could sell more dogs, if only you could make them! But, your grill is only so big; you can only cook so many dogs at a time. Your counter space is limited, and so is your shelf space for condiments. Plus, there's barely room in your little stand for you and your friend to work together.
To help figure out how to make your next move, you decided to plot your pricing and sales experiences on a chart. Divide the class into groups of three or four students, and brainstorm the situation. Be as specific as you possibly can about the costs and benefits of whatever you choose to do. Each group should consider these tough questions:
- If you charged $2.00 per hot dog, how many could you expect to sell per day?
- If you sold 200 hot dogs per day, how much would you have to charge in order to make a profit?
- What is the equilibrium price and quantity of hot dogs, according to this chart?
- Before you increased the quantity supplied up to the equilibrium price, the supply curve was quite flat. What did this mean, in real life?
- Why does the supply curve veer sharply upward, if you try to increase supply past the equilibrium price?
3. Elasticity of Supply and Demand in Different Markets
Please study the following supply and demand charts, and answer the questions below:
A. B. C. D.
- The market for blue jeans has an elastic supply. This means that the quantity supplied will tend to change quite a lot with relatively small changes in price. Which chart depicts the market for blue jeans?
- The market for land has an inelastic supply. This means that the quantity supplied will never change, regardless of changes in price. Which chart depicts the market for land?
- The market for cigarettes has an inelastic demand. This means that the quantity demanded will tend to change very little with relatively large changes in price. Which chart depicts the market for cigarettes?
- The market for chocolate bars has an elastic demand. This means that the quantity demanded will tend to change quite a lot with relatively small changes in price. Which chart depicts the market for chocolate bars?
- What happens to the price of land when demand rises?
- What happens to the supply of chocolate bars when their price rises?
| Reading for this lesson | Teacher's Notes | Further Investigations | Economic Studies Index |
