Supply and Demand A MARKET IN WHEAT

Today’s Objective  After today’s lesson, students will be able to…  Explain how supply and demand work together  Essential Skill:  Demonstrate understanding of concepts

A Market in Wheat  Read over the instructions for this activity

BUY AND SELL! ROUND 1 ROUND 2 ROUND 3

Hints!  More transactions = More chances at profit. You must buy and sell each round  You should not let other students see your card  You can only have one card at a time  You do not have to make a profit with every transaction. Win the war, not all the battles.  Check in on the class transactions tally to see what wheat is going for these days!

What your graph should look like:

Questions  At what price was wheat most frequently sold in each round?  Why did the prices become more clustered together in the later rounds?  Did buyers or sellers determine the price for wheat?  How did competition among the sellers and the buyers influence the price?

MarketEvent wheatA drought destroys much of the crop. redwood lumberEnvironmentalists urge consumers to boycott redwood products. cigarsA new study shows that smoking cigars results in lots of wrinkles. butterThe price of margarine goes up. paperThe price of wood pulp rises. Hula hoops Brad Pitt confides to People magazine that "he gets a big kick out of his hula hoop." yachts The average price of stocks falls by over 20% between now and the end of the year. gasoline Large sports-utility vehicles (like Suburbans and Expeditions) become more popular. umbrellasHeavy rain is forecast. tofuE. Coli bacteria is found in another meat plant. gasolineTwo oil supertankers collide. hamburgerThe price of hamburger rises. orangesThere's an early frost which destroys much of the crop. applesA new pesticide is developed which controls tent caterpillars. grapesThe government bans the use of pesticides.

wineThe average wage of grape harvesters rises by 10%. U.S. carsThe U.S. imposes a tariff on Japanese car imports. hospital bedsScientists discover a pill that cures cancer. cementA 7.9 earthquake hits San Francisco. Video rentalsThe price of getting cable TV goes up. windshieldsA new law is passed requiring gravel trucks to cover their loads with tarps. Taxi serviceLocal subway workers go on strike Bike helmetsThe price of bicycles goes down melonsThe cost of water goes up. Lucerne milkThe price of Safeway milk goes down. jellybeansThe price of jellybeans goes up. Oreo cookiesThe price of milk increases. Burger King whoppers McDonald's lowers the price of Big Macs. Hot dogs60 Minutes does an expose called "The Truth about Hot Dogs." Hot dog bunsThe price of flour rises butterMad Cow Disease wipes out a lot of dairy cows. candlesAn electric company official announces that a computer bug will likely result in power outages.

Situation Supply or quantity supplied? A coffee producer notices an increase in coffee prices and responds by increasing coffee production A local bakery is able to obtain ingredients for making baked goods at a lower cost The government collects a new tax from firms on each unit of output produced A new technology is discovered that enables firms to produce more output from the same quantity of an input The government gives firms a subsidy for each unit of a good that is produced Book publishers have an expectation that e-book sales will surge in the next year and prices rise The price of oil decreases Favorable market conditions bring more sellers into the market QS S S S S S S

Pencil producers expect an increase in the price of pencils in the near future. The number of pencil producers decrease. The government subsidizes the production of pencils. The price of pencils increases A technological innovation lowers the cost of producing pencils The government taxes producers of pencils Wage rates for workers who make pencils increase. Increase Decrease No Effect

 Along a supply curve, if the price of oil falls, what will happen to the quantity of oil supplied?  It will decrease  It will increase  It will not change  If the price of cars falls, carmakers are likely to make ___________.  More cars  Fewer cars  The same amount of cars

 All other things held constant, which of the following would not cause a change in the supply of beef?  A decrease in the price of beef  A decrease in the price of cattle feed  An increase in the price of cattle feed  An increase in the cost of transporting cattle to market  “Falling oil prices have caused a sharp decrease in the supply of oil” Speaking precisely, and using terms as they are defined by economists, choose the statement that best describes this quotation.  The quotation is correct: a decrease in price causes a decrease in supply.  The quotation is incorrect: a decrease in price causes an increase in supply, not a decrease in supply.  The quotation is incorrect: a decrease in price causes an increase in the quantity supplied, not a decrease in supply.  The quotation is incorrect: a decrease in price causes a decrease in the quantity supplied, not a decrease in supply.

Bottom Line  The price of nearly everything that you buy is determined by the interaction of supply and demand. Supply and demand also determine the quantity of goods and services that are bought and sold in a market.

Putting it Together  To determine price, we put both the supply and demand curve together on the same graph  Next we establish an equilibrium price: point at which the quantity supplied equals the quantity demanded  Equilibrium is found at the point where the two lines intersect

Shortage

Surplus

Each curve can shift: Single Curve Shifts

Four Single Shifts  Memorize 1. Demand, then P, and Q 2. Demand, then P, and Q 3. Supply, then P, and Q 4. Supply, then P, and Q

Price ($) A S0S0 Quantity of Video Games (thousands) D1D1 Increase in Demand D0D0 B

Price ($) E1 S0S0 Quantity of Video Games (thousands) 0 Qe1 Qe D0D0 Decrease in Demand D1D1 Pe1 Pe E

E1 Increase in Supply Quantity of Video Games (thousands) $ D0D0 S1S1 S0S0 E Price ($)

E Decrease in Supply Quantity of Video Games (thousands) $ D0D0 S1S1 S0S0 E1 Price ($)

V0tIOqU7m-c Practice Single Shifts Worksheet

Dual Shifts-When both curves move D S P ? Q D S P Q? D S P Q? D S P ? Q

CHANGES IN BOTH SUPPLY AND DEMAND If supply and demand decrease by the same amount, price will be unchanged and the quantity will decrease.

CHANGES IN BOTH SUPPLY AND DEMAND If supply decreases less than demand, price will decrease and quantity will decrease.

CHANGES IN BOTH SUPPLY AND DEMAND If supply decreases more than demand, price will increase and quantity will decrease.

CHANGES IN BOTH SUPPLY AND DEMAND If supply increases and demand decreases, the price will decrease and the quantity will not change.

Practice  Take a worksheet from the front to practice double shifts. There will also be examples of single shifts