I. Into Activity


Ask students to consider the following questions related to supply and demand:

Professional athletes: How much is a superstar in the NBA or WNBA paid compared to an
average player?

Automobiles: Do you think you'd pay more for a 1962 Corvette or a 2004 Corvette
(assuming that both are in good condition)?

Rocks: Which costs more, diamonds or gravel?
Ask students why they think some items are more expensive than others. Try to lead the discussion
so that students realize that rare things like superstars, antique automobiles, and diamonds are in
short supply. So that students think about scarcity, you might ask questions such as, "How many
superstars are there in the league, and how many average players are there?" Consequently,
students should realize that the cost for the special items is usually higher, because they are harder
to acquire.
II. Principles and Concepts
Law of Supply: As prices go up the amount producers are willing to supply go up
A supply schedule is a list of prices and quantities producers are willing to supply at that price
A supply curve graphically reflects that relationship represented by the schedule.
Law of Demand: As price goes up the amount consumers are willing to buy goes down
A demand schedule is a list of prices and quantities the consumer is willing to buy at that price
A demand curve graphically reflects that relationship represented by the schedule
Equilibrium Price is the price in which the supply producers are willing to supply and the price at which
demand consumers are willing to buy meet; typically represented in a supply and demand schedule.
Elasticity refers to degree in which a change in price moves supply and demand; again represented by
shifts along the curve.
A. The shirt business
1. Today you will design your own T-shirt and survey your classes to determine the equilibrium price
using the law of supply and demand.
2. Using the T-shirt organizer quickly design your shirt; you have five minutes.
3. Once you have the shirts designed, one person will survey each group to determine how much each
student would pay for that shirt. Place a tick mark beside each price indicating how many students were
willing to buy it at that price.
4. In your group plot the data on a graph of Cost in Dollars versus Number Sold. However, it is important
that students take into account that if a classmate states that they would buy the shirt for a particular
price, it can be assumed that they would also buy the shirt for any price less than that. For
instance, if a student says she would pay $12 for the shirt, it can be assumed that she would buy the shirt
for $1, $3, $8, or any price up to $12. This should be reflected in the graph. As a result, the graph will
represent a negative correlation; a possible graph is shown below.
5. When students have plotted the data, they should estimate a line of best fit; that is, they should draw a
line that roughly approximates the data. As an example, a possible line of best fit is shown in the graph
above.
6. Based on your graphs, you should answer the following questions:

How many shirts would you sell if you gave them away for free; that is, how many would you "sell"
at a price of $0?

At what price will you sell no shirts? That is, what price is higher than anyone would be willing to
pay?

For what price would you bring in the most total revenue?
7. Determine the equilibrium price:
A. Create a supply schedule that list the prices you surveyed your peers with and list the quantities you are
willing to supply at each price.
B. Take this data and plot it on a supply curve. At which price will you supply the most?
C. Create a new graph and plot the demand curve and supply curve. At which point do they intersect? What
does this indicate?
8. Elasticity and shifts on the curve:
A. What type of substitutes or compliments would could impact the supply and demand curve; why?
B. What other factors may determine the elasticity of your T-shirt; why?
C. Create a new schedule and curve for supply and demand that reflects the elasticity of the shirt and
determine the new equilibrium price.