Supply and Demand

Standard 8:  Summarize the foundational economic principles of supply and demand.  Distinguish between an economic good and an economic service, and draw conclusions about how the law of supply and demand influences what goods and services businesses will produce using limited resources.  Using a range of goods and services as evidence, write a brief informative text illustrating this relationship and the implications for consumers and the economy at large.

Opening Assignment

Complete Activity 3 worksheet  about "Opportunity Cost - Franklin's Decision" from the last lesson

Goods vs. Services

We learned from chapter 1 about the difference between goods and services.  Goods are tangible items that have monetary value and satisfy your needs and wants, such as cars, furniture, televisions, and clothing (something you can actually touch or put in a bag and carry out.)  Intangible items that have monetary value and satisfy your needs and wants are services.  Intangible means you can't actually touch them. Examples of services are getting your car washed, your taxes prepared, your lawn mowed, etc.

How Do Supply and Demand Work Together? 

Read pages 119-121.

Supply and demand work together to help businesses determine the price of their product or service.

Law of supply:  The economic rule that price and quantity supplied move in the same direction.  Suppliers want to supply a larger quantity of goods at higher prices so their businesses can be more profitable.

Law of demand:  The economic principle that price and demand move in opposite directions.  As the price of a good increases, the quantity of the good demanded falls.  As the price falls, demand for the good increases.

When supply and demand intersect that is the equilibrium price for the good or service.

Surpluses of goods occur when supply exceeds demand.

Shortages occur when demand exceeds supply.  Supply: An orange crop is damaged by frost, so grocery stores have fewer oranges.  Demand: After a hurricane, consumers rush to buy plywood to board up broken windows.

https://vimeo.com/27046074

 

Think About it

1. The price of a movie ticket goes from $7.00 to $8.50.  What should happen to the demand for these tickets?
2. Why would an economist say that "Supply and demand are inversely related to one another?
3. You manage a home improvement store.  Your area has just been hit by a flood.  Building supplies quickly become in short supply.  Would you raise prices to profit from this shortage?  Why or why not?

Review Key Concepts

1. What is price gouging (google)?
2. Answer questions 1-3 on page 121 
3. Complete 5.2 worksheets (49-50, 16)