SUPPLY AND
DEMAND
Ka-Ching! Supply, Demand and Market Price — LESSON 6
KA-CHING! SUPPLY, DEMAND
AND MARKET PRICE
Overview
A variety of factors, including changes in economic conditions, government
regulations, society or even the weather, can influence the supply or demand
for a product and consequently the market price for that product. Market
prices are determined by the interaction of the behaviors of producers and
consumers in a competitive market.
Supply is the quantities of a good or service that producers are willing and able
to sell at various prices at any given time. Demand is the quantities of a good or
service that consumers are willing and able to buy at various prices at any given
time.The market price is the price at which the quantity supplied and the quantity
demanded are equal.
Producers’ supply and consumers’ demand are both influenced by many factors.
Supply is determined by the cost of the factors of production, including anticipated
profit, and the producer’s opportunity cost (the value of the best alternative use of
a resource given up when a choice is made). Consumer demand for a product is
determined by the consumer’s income, the usefulness of the good or service, the
availability of substitutes and the prices of complementary goods.
In this lesson, students respond to scenarios about events or changes in consumer
or producer behaviors.They determine the predictable effects of the actions in
these scenarios on the supply of or demand for a variety of agricultural products.
They then discuss how supply and demand influences the market price for those
products. As an assessment activity, students create similar scenarios about an
agricultural product they regularly consume to determine the predictable effects
of events or changes in behaviors on the supply of, demand for and market price
of that product.
This activity is adapted with permission from Lessons in Economics: THIS is Ohio
Agriculture, a 1999 publication of the Ohio Farm Bureau Federation, Inc.
Objectives
The students will:
■ Determine the predictable impact of an event, decision or change in behavior
on the supply or demand for a product and its market price.
(Ohio Grade Six Citizenship Learning Outcome #13)
■ Identify the factors that influence the demand for a product.
(Ohio Grade Six Citizenship Learning Outcome #13)
■ Identify the factors that influence the supply of a product.
(Ohio Grade Six Citizenship Learning Outcome #13)
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LESSON 6 — Ka-Ching! Supply, Demand and Market Price
■
Predict how a change in the supply or demand for a product will influence the
market price of that product.
(Ohio Grade Six Citizenship Learning Outcome #13)
Student Learning Statements
■
Demand is the quantities of a good or service that consumers are willing and
able to buy at various prices at any given time.
■
Supply is the quantities of a good or service that producers are willing and able
to sell at various prices at any given time.
■
A factor that decreases the demand for a good or service will cause the
market price also to decrease. A factor that increases the demand for a good
or service will cause the market price also to increase.
■
A factor that decreases the supply of a good or service will cause the market
price to increase. A factor that increases the supply of a good or service will
cause the market price to decrease.
Vocabulary
Complementary Goods
■
Complementary Goods: Two goods or services for which a change in the
demand for one causes a similar change in the demand for the other. Also
called “complements.”
■
Cost: What one gives up when deciding to do something. Referring to
production, a payment for productive resources.
■
Cost of Production: Payments for land, labor, capital and entrepreneurial
resources (rent, wages, interest and profit).
■
Demand: The quantities of a good or service that consumers are willing and
able to buy at various prices at any given time.
■
Factors of Production: Land resources (natural), labor resources (human),
capital goods (physical capital) or entrepreneurial resources available to
produce goods and services. Also called “productive resources.”
■
Market Price: The price at which the quantity supplied and the quantity
demanded are equal.
■
Price: What people pay when they buy a good or service and what they
receive when they sell a good or service.
■
Substitutes: Two or more goods or services that can satisfy the same want.
Cost
Cost of Production
Demand
Factors of Production
Market Price
Price
Substitutes
Supply
Tastes and Preferences
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Ka-Ching! Supply, Demand and Market Price — LESSON 6
■
Supply: The quantities of a good or service that producers are willing and able
to sell at various prices at any given time.
■
Tastes and Preferences: Likes, desires or usefulness for a good or service
to satisfy a want.
Materials
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One small, ordinary rock
One plain, yellow No. 2 pencil
Student Page: Apple Market (transparency)
Teacher Page: Apple Market
Student Page: Egg Market (transparency)
Teacher Page: Egg Market
Student Page: Bacon Market (transparency)
Teacher Page: Bacon Market
Student Page:Tomato Market (transparency)
Teacher Page:Tomato Market
Teacher Page: Supply and Demand Graph (transparency)
Producing Ohio Video Connections
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Markets & Prices (Ohio Farm Bureau, the Ohio corn industry)
Monopoly & Competitive Markets (Cincinnati Bell)
Markets & Competition (Procter & Gamble)
Internet Resources
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http://www.futures.tradingcharts.com/learning/supply_and_demand.html
http://www.coolbank.com/MiddleSchool/supplyanddemand.htm
http://kr.mnsu.edu/~renner/supdem.htm
http://www.mhhe.com/economics/sharp/student/ch02_details.mhtml
http://economics.about.com/library/weekly/aa010900.htm
http://www.amosweb.com/cgi-bin/pdg_dsp.pl?term=Fact+2:+Our+
Subjective+Values
Prepare
■
Duplicate the four Student Pages—Apple Market, Egg Market, Bacon Market and
Tomato Market (one set per student).
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LESSON 6 — Ka-Ching! Supply, Demand and Market Price
Introduce
1. Show the small, ordinary rock to the class and
discuss the demand for it.
Who would like to buy this?
Probably no one.
Why not?
There are many rocks, and you can usually find one
without paying for it. Most people probably do not
have a use for one, small rock.
Explain that this illustrates that the “supply” of rocks is great and the “demand” is
low. Therefore, its “market price” is probably low.
Supply:
The quantities of a
good or service that
producers are willing
and able to sell at
various prices at any
given time.
2. Change the description of the rock to see how the change affects demand.
What if I tell you that this is a moon rock? Now how many people might want
to buy one?
Probably many people because moon rocks are rare, and many people would like to
have one.
Demand:
The quantities of a
good or service that
consumers are willing
and able to buy at
various prices at any
given time.
Explain that this illustrates that the supply of moon rocks is low and the demand is
probably high.Therefore, the “price” for a moon rock would probably be high.
3. What if you are the director of a space science museum with a need for moon
rocks to display? How would this affect demand?
Museums will probably pay a higher price for moon rocks if people would like to see
them in museums.
Market Price:
The price at which the
quantity supplied and
the quantity demanded
are equal.
Explain that if the supply is low and the demand increases, the price will be higher.
4. What if all of you are directors of space science museums and you all have a
need for this one and only moon rock?
If there is only one moon rock and many museums want it, they will probably be
willing to pay an even higher price for it.
Price:
What people pay when
they buy a good or
service and what they
receive when they sell
a good or service.
Explain that if the supply is low or stays the same and demand increases, the price
will go up more, possibly very high.
5. Show the plain, yellow No. 2 pencil to the class and discuss the demand for it.
Who would like to buy this pencil? Why or why not?
Some students may want a pencil. Other students may already have pencils or have
no reason to want another pencil.
Explain that you have many pencils. If the supply of pencils is high and the demand
is low, the price for the pencils will probably be very low.
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Ka-Ching! Supply, Demand and Market Price — LESSON 6
6. Increase the value of the plain, yellow pencil.
What if I tell you that this is the only pencil in the classroom? How many people
might want to purchase it? How would the change in supply affect its price?
Those who wanted a pencil may have to pay a higher price because there is only
one pencil available to buy.
If the supply of pencils is less and the demand stays the same, what happens
to the price?
The price will probably go up.
7. Increase the pencil’s value up another notch.
!
What if I tell you that you are about to take an important test and this is the
only available pencil? Now how many students will want to buy the pencil? If
there is an increase in demand, what will happen to its price?
If more people want to buy a pencil and the supply is very low, the price will go higher.
TEACHER TIP:
In lieu of filling out the
Student Pages to indicate
the changes in supply,
demand and market
price, students could
physically indicate the
effects using their hands
(thumbs up or thumbs
down) or arrows. Have
students stand up.They’ll
use their right hands to
indicate “supply.” They’ll
use their left hands to
indicate “demand.” Or
students could make
paper arrows to point
up or down.
Teach
8. Give a copy of Student Page: Apple Market to each student.This page will be
used to illustrate the effects of five scenarios on the apple market.
Have students read the five scenarios presented and determine the predicable
impact of each of those scenarios on the supply of, demand for and market
price for apples. Students should mark their pages accordingly.
Discuss
9. The Teacher Page: Apple Market provides possible points of discussion for
each scenario.
For example, ask students about the first scenario:
When research leads to a hardier tree, what might happen to the supply and
price of apples?
If farmers can plant better trees that produce more apples, the supply of apples
increases (thumb up). If demand stays the same, the price goes down (thumb down).
For each scenario,
pointing the right hand
thumb up would indicate
that the supply increases,
thumb down would
indicate supply decreases.
Pointing the left hand
thumbs up or down
would indicate demand
increases or decreases.
Students could then
verbalize what would
happen to the market
price.
Brainstorm other possible events that might affect the supply of, demand for and
market price of apples.
10. Use the three additional Student Pages (Egg Market, Bacon Market and
Tomato Market) for further discussion of the impact of different events,
information or behaviors on supply, demand and market price.These
discussions can be done in small groups or as a class.The companion Teacher
Pages (Egg, Bacon and Tomato Markets) provide possible points of discussion for
each agricultural product.
!
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LESSON 6 — Ka-Ching! Supply, Demand and Market Price
Conclude
11. What kinds of events can influence supply and “cost”?
Changes in the availability of the “factors of production” or the “cost of production”
can affect supply.
What kinds of events can influence demand?
Changes in “tastes and preferences,” consumer income, “substitutes” or
“complementary goods” can affect demand.
Use the chart below to aid in this discussion:
POSSIBLE EVENTS, BEHAVIOR CHANGES, LAWS OR CONDITIONS
THAT CAN AFFECT SUPPLY, DEMAND AND MARKET PRICE
✓ New product information
✓ Changes in the markets for substitutes
✓ Extreme good or bad weather
✓ A change in consumer preferences
✓ Product innovation
✓ Changes in production costs
✓ New government regulations
✓ A change in imports or exports
✓ Improved transportation systems
✓ Changes in the markets for complementary goods
✓ New uses for the resource goods
✓ Changes in production in other countries
✓ Research results (good or bad)
Cost: What one gives up when deciding to do something. Referring to
production, a payment for productive resources.
Factors of Production: Land resources (natural), labor resources (human),
capital goods (physical capital) or entrepreneurial resources available to
produce goods and services. Also called “productive resources.”
Cost of Production: Payments for land, labor, capital and entrepreneurial
resources (rent, wages, interest and profit).
Tastes and Preferences: Likes, desires or usefulness for a good or service
to satisfy a want.
Substitutes: Two or more goods or services that can satisfy the same want.
Complementary Goods: Two goods or services for which a change in the
demand for one causes a similar change in the demand for the other. Also
called “complements.”
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Ka-Ching! Supply, Demand and Market Price — LESSON 6
Assess
12. Each individual student or small work group selects an agricultural product
produced in Ohio that they regularly consume.
13. Students will then create scenarios about this product along the same lines as
those in the market studies in this lesson. Students create lists of events, law
changes, behavior changes or factors that might cause the supply of or demand
for that agricultural product to change. One possible scenario: An unusually dry
summer causes Ohio’s potato crop to be very small. A small crop will result in
a smaller supply and a higher market price for potatoes.
14. From the lists of events and other factors that the students create during their
discussion, they should select one event that might change the supply and one
event that might change the demand for their agricultural product.
Explain how that event would change demand and/or supply and how that
change would influence the market price. Students can make oral presentations
of their scenarios to the class.
Connect: Expanding the Learnings
LANGUAGE ARTS
Students can read about the production of a variety of goods and services to identify
the events that affect the supply of or demand for those goods and services.
MATHEMATICS
If students have previously been introduced to supply and demand graphs (in
Lessons 4 and 5), use Teacher Page: Supply and Demand Graph to illustrate how
changes in supply and changes in demand influence market price.
SCIENCE
Students can identify how inventions, scientific discoveries or research have affected
the supply of or demand for agricultural or other goods and services.
Use the following examples to generate discussion:
■ The invention of the steel plow allowed farmers to cultivate much more land
in the same period of time it used to take to do this work manually.This
invention increased output and supply.The result of the increased supply was
that the prices of crops decreased.
■ Medical discoveries have increased peoples’ life spans. As more people live
longer and populations increase, demand for all goods and services increases.
Greater demand influences prices to increase.
■ The invention of the process to modify certain crops genetically has increased
the yield per acre for those crops and has reduced losses from crop diseases
or pests. Greater crop yields (greater supply) influences crop prices to decrease.
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LESSON 6 — Ka-Ching! Supply, Demand and Market Price
STUDENT PAGE
Apple Market
Name
________________________________________________________________
How do events affect the price of a product? Read each scenario below and determine:
1. Does the event cause a change (an increase or decrease) in the supply of
apples or in the demand for apples? Check the box under one of the four hand
symbols in the “Supply” and “Demand” sections to reflect either an increase
(thumb up) or a decrease (thumb down) in the supply of or the demand for
apples caused by the event described in each scenario. Check just one box.
2. Depending on your choice above, how will the market price of apples change?
Will it go up or down? Choose one hand symbol under “Market Price” that
reflects either an increase (thumb up) or a decrease (thumb down) in the
market price of apples.
SCENARIOS
1. Research leads to a new variety
of dwarf apple tree—a stronger,
hardier tree that produces
more apples.
2. New research indicates that apples
are full of fiber and can reduce
cholesterol levels significantly.
3. Due to poor weather in the
apple growing states of Washington,
Michigan and Maine, the apple
crop harvested is the smallest in
many years.
4. A news report about the dangers
of Alar, a pesticide used on apples,
airs on a national television
network news show.
5. A federal government program
provides financial assistance to
communities to purchase apple
juice for school lunch programs.
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SUPPLY or DEMAND
(Check one box)
MARKET PRICE
(Check one box)
Ka-Ching! Supply, Demand and Market Price — LESSON 6
TEACHER PAGE
Apple Market
SCENARIO 1
Research leads to a new variety of dwarf apple tree—a stronger, hardier tree that
produces more apples.
Discussion Points: If the new trees produce more apples, the supply of apples would
increase. If supply increases and there is no change in demand, the market price will
decrease.
SCENARIO 2
New research indicates that apples are full of fiber and can reduce cholesterol
levels significantly.
Discussion Points: New information published about positive health benefits can
increase the demand for a product. As demand goes up and supply stays the same the
price can show significant movement upward.
SCENARIO 3
Due to poor weather in the apple growing states of Washington, Michigan and
Maine, the apple crop harvested is the smallest in many years.
Discussion Points: A poor crop will mean that fewer apples will be available—the
supply will decrease. A smaller supply, assuming that the demand stays the same, will
cause the market price to increase.
SCENARIO 4
A news report about the dangers of Alar, a pesticide used on apples, airs on a
national television network news show.
Discussion Points: New information, even if it is not completely verified, can produce
significant changes in demand for a product.This event actually occurred in 1989. As a
result of the national report about Alar, and the public’s response, apple producers across
the United States destroyed a large quantity of apples and apple products.The supply
of apples decreased considerably. Because of the new information consumers had, the
demand also decreased, but not as much as the supply decreased.Therefore, the price
of apples went up.
SCENARIO 5
A federal government program provides financial assistance to communities to
purchase apple juice for school lunch programs.
Discussion Points: If the schools have more income to purchase apple juice, the
demand for apple juice, and consequently apples, will increase. If demand for apples
and apple juice increases and supply stays the same, the price will increase.
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LESSON 6 — Ka-Ching! Supply, Demand and Market Price
STUDENT PAGE
Egg Market
Name
________________________________________________________________
How do events affect the price of a product? Read each scenario below and determine:
1. Does the event cause a change (an increase or decrease) in the supply of
eggs or in the demand for eggs? Check the box under one of the four hand
symbols in the “Supply” and “Demand” sections to reflect either an increase
(thumb up) or a decrease (thumb down) in the supply of or the demand for
eggs caused by the event described in each scenario. Check just one box.
2. Depending on your choice above, how will the market price of eggs change?
Will it go up or down? Choose one hand symbol under “Market Price” that
reflects either an increase (thumb up) or a decrease (thumb down) in the
market price of eggs.
SCENARIOS
1. Egg production goes up as farmers
enlarge the size of poultry farms.
2. A new disease kills millions of
“layers” (egg laying chickens) across
the United States.
3. Lower egg prices cause some
farmers to get out of the egg
business.
4. Civil unrest in a foreign country
causes huge shipments of exported
eggs (eggs sold to other countries)
to be canceled.
5. Food technologists find many new
uses for eggs in pre-packaged foods.
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SUPPLY or DEMAND
(Check one box)
MARKET PRICE
(Check one box)
Ka-Ching! Supply, Demand and Market Price — LESSON 6
TEACHER PAGE
Egg Market
SCENARIO 1
Egg production goes up as farmers enlarge the size of poultry farms.
Discussion Points: Larger farms create a greater supply over a longer period of time.
Assuming that the demand stays the same, prices would decrease.
SCENARIO 2
A new disease kills millions of “layers” (egg laying chickens) across the United States.
Discussion Points: Diseases that negatively impact the supply of a product can produce
dramatic changes in price. Assuming that demand stays the same, prices would rise.
SCENARIO 3
Lower egg prices cause some farmers to get out of the egg business.
Discussion Points: Low prices affect the profits of farmers. If there is no profit because
of low market prices, farmers are sometimes forced out of business.This might decrease
the supply. If demand stays the same, prices could rise slowly over time.
SCENARIO 4
Civil unrest in a foreign country causes huge shipments of exported eggs (eggs sold
to other countries) to be canceled.
Discussion Points: Political turmoil can cause changes in imports or exports that affect
prices.The shipments intended for export might be placed on the local market, creating
a surplus of supply. Assuming that demand stays the same, a large price drop could
be expected.
SCENARIO 5
Food technologists find many new uses for eggs in pre-packaged foods.
Discussion Points: New uses for eggs create a greater demand for eggs. As the
demand for eggs goes up, assuming that supply stays the same, the price should rise.
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LESSON 6 — Ka-Ching! Supply, Demand and Market Price
STUDENT PAGE
Bacon Market
Name
________________________________________________________________
How do events affect the price of a product? Read each scenario below and determine:
1. Does the event cause a change (an increase or decrease) in the supply of
bacon or in the demand for bacon? Check the box under one of the four hand
symbols in the “Supply” and “Demand” sections to reflect either an increase
(thumb up) or a decrease (thumb down) in the supply of or the demand for
bacon caused by the event described in each scenario. Check just one box.
2. Depending on your choice above, how will the market price of bacon change?
Will it go up or down? Choose one hand symbol under “Market Price” that
reflects either an increase (thumb up) or a decrease (thumb down) in the
market price of bacon.
SCENARIOS
1. Bacon is added to three new menu
items at a popular restaurant chain.
2. Advertising campaigns showcase
new bacon products, such as
low-fat bacon.
3. More strict government meat
inspection standards create a
slowdown in bacon production.
4. New technologies and veterinary
practices help farmers double the
size of their pork operations.
5. Refrigerated trucks and improved
highway systems allow more bacon
to be delivered to the market.
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SUPPLY or DEMAND
(Check one box)
MARKET PRICE
(Check one box)
Ka-Ching! Supply, Demand and Market Price — LESSON 6
TEACHER PAGE
Bacon Market
SCENARIO 1
Bacon is added to three new menu items at a popular restaurant chain.
Discussion Points: A large company can create increased demand for a product.
Assuming supply stays the same, the price will increase.
SCENARIO 2
Advertising campaigns showcase new bacon products, such as low-fat bacon.
Discussion Points: Consumer interest can result in greater demand for new products,
such as low-fat, low-salt or new flavors. Assuming that supply stays the same, the price
should rise.
SCENARIO 3
More strict government meat inspection standards create a slowdown in bacon
production.
Discussion Points: Government regulations are meant to protect the consumer.The
time and cost related to meeting government standards can negatively affect the supply.
As the supply drops, if demand stays the same, the price should rise.
SCENARIO 4
New technologies and veterinary practices help farmers double the size of their
pork operations.
Discussion Points: As the size of farms increases, so does the supply of a product.
Assuming that demand stays the same, prices should decrease.
SCENARIO 5
Refrigerated trucks and improved highway systems allow more bacon to be
delivered to the market.
Discussion Points: If more bacon is delivered to the market, supply increases. Improved
transportation or other reduced production costs of supplying bacon to the market will
allow market prices to decrease.
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LESSON 6 — Ka-Ching! Supply, Demand and Market Price
STUDENT PAGE
Tomato Market
Name
________________________________________________________________
How do events affect the price of a product? Read each scenario below and determine:
1. Does the event cause a change (an increase or decrease) in the supply of
tomatoes or in the demand for tomatoes? Check the box under one of the
four hand symbols in the “Supply” and “Demand” sections to reflect either
an increase (thumb up) or a decrease (thumb down) in the supply of or the
demand for tomatoes caused by the event described in each scenario. Check
just one box.
2. Depending on your choice above, how will the market price of tomatoes
change? Will it go up or down? Choose one hand symbol under “Market Price”
that reflects either an increase (thumb up) or a decrease (thumb down) in the
market price of tomatoes.
SCENARIOS
1. Bad weather destroys the tomato
crop in Ohio.
2. Local zoning laws change,
decreasing acres of farmland
available to produce tomatoes.
3. Mexico doubles the quantity
of tomatoes it sells to the
United States.
4. A large food manufacturer invents
new products: spicy tomato soup,
pizza sauce and three new
tomato-based pasta sauces.
5. Increases in the supply of broccoli,
carrots and green peppers lead to
lower prices for these vegetables.
108
SUPPLY or DEMAND
(Check one box)
MARKET PRICE
(Check one box)
Ka-Ching! Supply, Demand and Market Price — LESSON 6
TEACHER PAGE
Tomato Market
SCENARIO 1
Bad weather destroys the tomato crop in Ohio.
Discussion Points: When a crop is destroyed, supply decreases. However, sometimes
production in other parts of the country and imports from other countries can fulfill
demand for a product.Therefore, the local destruction of a crop may cause the price to
increase only slightly.
SCENARIO 2
Local zoning laws change, decreasing acres of farmland available to produce tomatoes.
Discussion Points: As urban and suburban areas expand, less farmland is available to
grow crops. As supply goes down, assuming that demand stays the same, the prices should
rise over time.
SCENARIO 3
Mexico doubles the quantity of tomatoes it sells to the United States.
Discussion Points: Increased imports from other countries increase the supply of a
product. If supply increases and demand stays the same, prices should drop.
SCENARIO 4
A large food manufacturer invents new products: spicy tomato soup, pizza sauce
and three new tomato-based pasta sauces.
Discussion Points: Large companies can create demand with new products. If demand
increases significantly, prices rise accordingly.
SCENARIO 5
Increases in the supply of broccoli, carrots and green peppers lead to lower prices
for these vegetables.
Discussion Points: Increases in the supply of broccoli, carrots and green peppers
lead to lower prices for those vegetables. If broccoli, carrots and green peppers
are substitutes for tomatoes, people will buy more of the less-expensive substitute
vegetables and the demand for tomatoes will decrease. If this happens, the price of
tomatoes will also decrease.
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LESSON 6 — Ka-Ching! Supply, Demand and Market Price
TEACHER PAGE
Supply and Demand Graph
Supply and Demand
D1
D2
S3
S1
S2
PRICE
D3
4
3
2
1
QUANTITY SUPPLIED AND DEMANDED
Line D1 is the original demand curve.
1. Increased demand will shift the demand curve to the right—from D1 to D2.
If supply remains the same, the market price will increase.
2. Decreased demand will shift the demand curve to the left—from D1 to D3.
If supply remains the same, the market price will decrease.
Line S1 is the original supply curve.
3. Increased supply will shift the supply curve to the right—from S1 to S2.
If demand remains the same, the market price will decrease.
4. Decreased supply will shift the supply curve to the left—from S1 to S3.
If demand remains the same, the market price will increase.
110