MB MC
Sept. 23-Oct. 4
Essential Question- What is Supply and
Demand?
Learning Goal- To compare/contrast
supply and demand.
SCALE:
4- To compare/contrast supply and demand, and analyze how
that affects personal finance.
3- To compare/contrast supply and demand.
2- To define supply and demand.
1- No Understanding.
Copyright c 2007 by The McGraw-Hill
Companies, Inc. All rights reserved.
Slide 1
MB MC
AN INTRO TO SUPPLY AND DEMANDSEPT. 23
ENGLISH AUCTION: HOW TO APPLY
ECONOMICS
I will be selling an announced number of M&M
packets through an English auction to derive
a classroom demand curve. In the same
lecture I will give each student a packet of
M&Ms and buys back an announced number
of packets through a reverse English auction
to derive a classroom supply curve.
Copyright c 2007 by The McGraw-Hill
Companies, Inc. All rights reserved.
Slide 2
MB MC
AUCTION: DEMAND

I am now going to run a classroom auction. Please listen carefully as I
read the instructions for this auction. I am passing out blank index
cards and you should each take ONE card. You should not write
anything on this card until told to do so.

I (the teacher) will be auctioning off to the highest bidders "fun
size" M&M packets (1.69 oz), which you can see here in my
hand. I will sell up to three packets. You can each purchase a
maximum of one packet. Prior to participating in the auction,
think about the maximum price at which you would be willing to
buy an M&M packet. You will be required to pay in U.S.
currency, so please do not bid values above $0 if you are not
prepared to pay.
Copyright c 2007 by The McGraw-Hill
Companies, Inc. All rights reserved.
Slide 3
MB MC
Demand

The auction begins with every student standing, so please stand
up now. I am writing on the board the starting price for the
auction, which will be $0. I will then begin to increase the price.
By remaining standing, you are indicating that you would be
willing to buy a packet of M&Ms at the price most recently
announced. If at any point in the auction, the announced price
rises above the maximum price at which you are willing to buy a
packet, you should sit down.

When you sit down, please write on your index card the price
that came before the announced price that caused you to sit
down. In other words, write down the price that was either equal
to or less than the maximum price that you were willing to pay
for the M&M packet. You do not write anything else on the card.
Copyright c 2007 by The McGraw-Hill
Companies, Inc. All rights reserved.
Slide 4
MB MC
Demand

The price will rise until three or fewer students remain standing.
At this point the price stops rising and all bidders still standing
will pay this price in exchange for a packet of M&Ms. I ask that
these winning bidders estimate the maximum amount that they
were willing to pay for the M&M packet, if the price had
continued rising, and write it down on their index cards.
We will then graph the results: DATA ENTRY WEBSITE
http://www.econport.org/content/teaching/modules/DemandSupply/
DemandExp.html

Copyright c 2007 by The McGraw-Hill
Companies, Inc. All rights reserved.
Slide 5
MB MC
AUCTION: SUPPLY

I am now going to run another classroom auction that is similar
to the previous one we ran with the exception that instead of
selling M&M packets through the auction, I will be buying M&M
packets. Please listen carefully as I read the instructions for this
auction. I am passing out blank index cards and you should
each take ONE card. You should not write anything on this card
until told to do so. I am also passing around "fun size" M&M
packets (1.69 oz). You should each take just ONE packet.
Please do not take any more than one packet.

I (the teacher) will be purchasing up to three M&M packets from
students in the classroom. You can sell a maximum of one
packet each. Prior to participating in the auction, think about the
minimum price at which you would be willing to sell your M&M
packet to me
Copyright c 2007 by The McGraw-Hill
Companies, Inc. All rights reserved.
Slide 6
MB MC
SUPPLY

The auction begins with every student standing, so please stand
up now. I am writing on the board the starting price for the
auction, which will be $3. I will then begin to decrease the price.
By remaining standing, you are indicating that you would be
willing to sell your packet of M&Ms at the price most recently
announced. If at any point in the auction, the announced price
drops below the minimum price at which you are willing to sell a
packet, you should sit down.
When you sit down, please write on your index card the price
that came before the announced price that caused you to sit
down. In other words, write down the price that was either equal
to or greater than the minimum price that you were willing to
accept for giving up your M&M packet. You do not write
anything else on the card.
Copyright c 2007 by The McGraw-Hill
Companies, Inc. All rights reserved.
Slide 7
MB MC
SUPPLY

The price will decline until three or fewer students remain
standing. At this point the price stops declining and all bidders
still standing will receive this price in exchange for a packet of
M&Ms. We ask that these winning bidders estimate the
minimum amount that they were willing to accept for giving up
their M&M packet, if the price had continued declining, and write
it down on their index cards.
MARKET ANALYSIS: DATA ENTRY-
Copyright c 2007 by The McGraw-Hill
Companies, Inc. All rights reserved.
Slide 8
MB MC

Supply and Demand:
BELLWORK- Sept. 24
How do consumers get the goods and
services they want in the right quantities
and qualities?
Copyright c 2007 by The McGraw-Hill
Companies, Inc. All rights reserved.
Slide 9
MB MC
BELLWORK- ANSWER

Some goods and services are allocated
by the market forces of supply and
demand
Copyright c 2007 by The McGraw-Hill
Companies, Inc. All rights reserved.
Slide 10
MB MC

Supply and Demand:
An Introduction
Why do some goods and services have
shortages or surpluses and others do
not?

Some good and supplies services are
regulated by government
Copyright c 2007 by The McGraw-Hill
Companies, Inc. All rights reserved.
Slide 11
MB MC

What, How, and For Whom?
Three Problems All Economic Systems
Must Address
What should be produced?
 How should it be produced?
 For whom will it be produced?

Copyright c 2007 by The McGraw-Hill
Companies, Inc. All rights reserved.
Slide 12
MB MC
What, How, and For Whom?

Free-Market or Capitalist Economic
System

Individual choices determine:
 Which
careers to pursue
 Which products to produce or buy
 When to start and shut-down a business
 Who gets what is decided by individual
preferences and purchasing power
Copyright c 2007 by The McGraw-Hill
Companies, Inc. All rights reserved.
Slide 13
MB MC
READING DAY

Students will read Freakonomics during
the rest of their class in preparation to
address Question 2 in their
Freakonomics Paper.
Copyright c 2007 by The McGraw-Hill
Companies, Inc. All rights reserved.
Slide 14
MB MC
Bellwork- Sept. 25

Define a Capitalistic Economy
Copyright c 2007 by The McGraw-Hill
Companies, Inc. All rights reserved.
Slide 15
MB MC
Buyers and Sellers In Markets

Market


Consists of all buyers and sellers of a good
or service
What do you think?

What determines the price of pizza,
gasoline, a car wash, or other goods and
services?
Copyright c 2007 by The McGraw-Hill
Companies, Inc. All rights reserved.
Slide 16
MB MC
Buyers and Sellers In Markets

The Demand Curve

A schedule or graph that tells us the
quantity of a good that buyers wish to buy
at each price
Copyright c 2007 by The McGraw-Hill
Companies, Inc. All rights reserved.
Slide 17
MB MC
Buyers and Sellers In Markets

A Property of Demand
As price of a good or service goes down
the quantity consumers wish to buy will
increase
 Therefore, the demand curve is downwardsloping

Copyright c 2007 by The McGraw-Hill
Companies, Inc. All rights reserved.
Slide 18
MB MC
The Daily Demand
Curve for Pizza in Chicago
Price
($ per slice)
4
3
2
Demand
8
Copyright c 2007 by The McGraw-Hill
Companies, Inc. All rights reserved.
12
16
Quantity
(1000s of slices per day)
Slide 19
MB MC
DEMAND ACTIVITY

http://www.bized.co.uk/learn/economics/
markets/mechanism/interactive/part1.ht
m
Copyright c 2007 by The McGraw-Hill
Companies, Inc. All rights reserved.
Slide 20
MB MC
SEPT. 26th- Bellwork

Define Demand- what is it?
Copyright c 2007 by The McGraw-Hill
Companies, Inc. All rights reserved.
Slide 21
MB MC
Buyers and Sellers In Markets

The Demand Curve

Why do buyers purchase a greater quantity
at lower prices and vice-versa?
 The
substitution effect
 The income effect
Copyright c 2007 by The McGraw-Hill
Companies, Inc. All rights reserved.
Slide 22
MB MC
Buyers and Sellers In Markets

The Substitution Effect

The change in the quantity demanded of a
good that results because buyers switch to
substitutes when the price of the good
changes
Copyright c 2007 by The McGraw-Hill
Companies, Inc. All rights reserved.
Slide 23
MB MC
Buyers and Sellers In Markets

The Income Effect

The change in the quantity demanded of a
good that results because a change in the
price of a good changes the buyer’s
purchasing power
Copyright c 2007 by The McGraw-Hill
Companies, Inc. All rights reserved.
Slide 24
MB MC
Buyers and Sellers In Markets

The Cost-Benefit Principle
The reservation price is the benefit the
buyer receives from the good
 The cost of the good is its market price
 If the reservation price (benefit) exceeds
the market price (cost) the consumer will
purchase the good
 At higher prices, benefit will exceed cost
for a smaller quantity than at lower prices

Copyright c 2007 by The McGraw-Hill
Companies, Inc. All rights reserved.
Slide 25
MB MC
Buyers and Sellers In Markets
Price
($ per slice)
The buyers reservation price:
The largest dollar amount the
buyer would be willing to pay for
a good
4
3
2
Demand
8
Copyright c 2007 by The McGraw-Hill
Companies, Inc. All rights reserved.
12
16
Quantity
(1000s of slices per day)
Slide 26
MB MC
Buyers and Sellers In Markets
Horizontal Interpretation
Price
($ per slice)
Price determines
quantity demanded
4
3
2
Demand
8
Copyright c 2007 by The McGraw-Hill
Companies, Inc. All rights reserved.
12
16
Slide 27
MB MC
Buyers and Sellers In Markets
Vertical Interpretation
Price
($ per slice)
Quantity measures the
marginal buyer’s
reservation price
4
3
2
Demand
8
Copyright c 2007 by The McGraw-Hill
Companies, Inc. All rights reserved.
12
16
Slide 28
MB MC

What do people want to
wear?-Demand Activity
http://www.econedlink.org/lessons/index
.php?lid=458&type=student
Copyright c 2007 by The McGraw-Hill
Companies, Inc. All rights reserved.
Slide 29
MB MC
Bellwork- 9/27

Why do businesses look to the
consumer to determine the supply?
Copyright c 2007 by The McGraw-Hill
Companies, Inc. All rights reserved.
Slide 30
MB MC

An Intro to Supply and
Demand
The Toy Market- Supply and Demand
Copyright c 2007 by The McGraw-Hill
Companies, Inc. All rights reserved.
Slide 31
MB MC
Bellwork- Sept. 30th

How many hours do you spend studying
every night?
Copyright c 2007 by The McGraw-Hill
Companies, Inc. All rights reserved.
Slide 32
MB MC



How many hours would you study if you
were paid $1 an hour?
$10 an hour?
If you would study more at a higher
price, you are following the Law of
Supply.
Copyright c 2007 by The McGraw-Hill
Companies, Inc. All rights reserved.
Slide 33
MB MC
Buyers and Sellers In Markets

The Supply Curve

A curve or schedule showing the quantity
of a good that sellers wish to sell at each
price
Copyright c 2007 by The McGraw-Hill
Companies, Inc. All rights reserved.
Slide 34
MB MC
Buyers and Sellers In Markets

Question

Will the opportunity cost of producing
additional units of pizza increase or
decrease?
Copyright c 2007 by The McGraw-Hill
Companies, Inc. All rights reserved.
Slide 35
MB MC
Buyers and Sellers In Markets

The Supply Curve

Sellers must receive a higher price to
produce additional units of product to cover
the higher opportunity costs of each
additional unit
Copyright c 2007 by The McGraw-Hill
Companies, Inc. All rights reserved.
Slide 36
MB MC
The Daily Supply
Curve for Pizza in Chicago
Price
($ per slice)
Supply
4
3
2
8
Copyright c 2007 by The McGraw-Hill
Companies, Inc. All rights reserved.
12
16
Quantity
(1000s of slices per day)
Slide 37
MB MC
The Daily Supply
Curve for Pizza in Chicago
Horizontal Interpretation
Price
($ per slice)
Supply
4
Shows the
quantity produced
for each price
3
2
8
Copyright c 2007 by The McGraw-Hill
Companies, Inc. All rights reserved.
12
16
Quantity
(1000s of slices per day)
Slide 38
MB MC
The Daily Supply
Curve for Pizza in Chicago
Vertical Interpretation
Price
($ per slice)
Supply
4
Shows the marginal
cost (reservation
price) for producing
each additional unit
3
2
8
Copyright c 2007 by The McGraw-Hill
Companies, Inc. All rights reserved.
12
16
Quantity
(1000s of slices per day)
Slide 39
MB MC

The Daily Supply
Curve for Pizza in Chicago
Seller’s Reservation Price

The smallest dollar amount for which a
seller would be willing to sell an additional
unit, generally equal to marginal cost
Copyright c 2007 by The McGraw-Hill
Companies, Inc. All rights reserved.
Slide 40
MB MC



Thus, the Law of Supply states that the
quantity supplied varies directly with its
price.
In other words, if prices are high,
suppliers will offer greater quantities for
sale.
If prices are low, they will offer smaller
quantities for sale.
Copyright c 2007 by The McGraw-Hill
Companies, Inc. All rights reserved.
Slide 41
MB MC
video

http://www.econedlink.org/interactives/in
dex.php?iid=221&type=student
Copyright c 2007 by The McGraw-Hill
Companies, Inc. All rights reserved.
Slide 42
MB MC
Bellwork-Oct. 1

Define Supply, why do demand and
supply go hand-in-hand?
Copyright c 2007 by The McGraw-Hill
Companies, Inc. All rights reserved.
Slide 43
MB MC


Students will read article, to prepare
them for the day’s activity.
http://www.econedlink.org/interactives/in
dex.php?iid=221&type=student
Copyright c 2007 by The McGraw-Hill
Companies, Inc. All rights reserved.
Slide 44
MB MC
Market Equilibrium

Equilibrium


A system is in equilibrium when there is no
tendency for it to change
Market Equilibrium

Occurs in a market when all buyers and
sellers are satisfied with their respective
quantities at the market price
Copyright c 2007 by The McGraw-Hill
Companies, Inc. All rights reserved.
Slide 45
MB MC
The Equilibrium Price and
Quantity of Pizza In Chicago
Price
($ per slice)
Supply
Equilibrium at $3
Quantity Demanded =
Quantity Supplied
4
3
2
Demand
8
Copyright c 2007 by The McGraw-Hill
Companies, Inc. All rights reserved.
12
16
Quantity
(1000s of slices per day)
Slide 46
MB MC
Market Equilibrium

Equilibrium Price and Equilibrium
Quantity

The values of price and quantity for which
quantity supplied and quantity demanded
are equal
Copyright c 2007 by The McGraw-Hill
Companies, Inc. All rights reserved.
Slide 47
MB MC
Market Equilibrium

What Do You Think?
Would buyers prefer a lower price than the
equilibrium price?
 Would sellers prefer a higher price than the
equilibrium price?

Copyright c 2007 by The McGraw-Hill
Companies, Inc. All rights reserved.
Slide 48
MB MC
Excess Supply
Excess supply = 8,000 slices per day
Price
($ per slice)
Supply
4
3
2
Demand
8
Copyright c 2007 by The McGraw-Hill
Companies, Inc. All rights reserved.
12
16
Quantity
(1000s of slices per day)
Slide 49
MB MC
Excess Demand
Price
($ per slice)
Supply
4
Excess demand = 8,000
slices per day
3
2
Demand
8
Copyright c 2007 by The McGraw-Hill
Companies, Inc. All rights reserved.
16
Quantity
(1000s of slices per day)
Slide 50
Points Along the Demand and
Supply Curves of a Pizza Market
MB MC
Demand for pizza
Supply of pizza
Price
($/slice)
Quantity demanded
(1000s of slices/day)
Price
($/slice)
Quantity supplied
(1000s of slices/day)
1
8
1
2
2
6
2
4
3
4
3
6
4
2
4
8
Copyright c 2007 by The McGraw-Hill
Companies, Inc. All rights reserved.
Slide 51
MB MC
Graphing Supply and Demand and
Finding the Equilibrium Price and Quantity
Price
($per slice)
Supply
5
4
The Equilibrium Price = $2.50
The Equilibrium Quantity = 5
3
2.50
2
1
0
Demand
2
4
6
8
10
Quantity
(1000s of slices per day)
5
Copyright c 2007 by The McGraw-Hill
Companies, Inc. All rights reserved.
Slide 52
MB MC
Activity
Students will complete worksheet. This is
your Exit Slip for today’s class.
http://www.econedlink.org/lessons/docs_l
essons/747_ChangingYourPrice15.pdf
Copyright c 2007 by The McGraw-Hill
Companies, Inc. All rights reserved.
Slide 53
MB MC
Bellwork- Oct. 2

What Do You Think?

Is the market equilibrium always an ideal
outcome for all market participants?
Copyright c 2007 by The McGraw-Hill
Companies, Inc. All rights reserved.
Slide 54
MB MC
READING DAY- Oct. 2

Students will read Freakonomics in
preparation for their next paper due
date.
Copyright c 2007 by The McGraw-Hill
Companies, Inc. All rights reserved.
Slide 55
MB MC
Bellwork: Oct. 3

Why do prices always change on gas?
(hint: think current events)
Copyright c 2007 by The McGraw-Hill
Companies, Inc. All rights reserved.
Slide 56
MB MC
An Unregulated Housing Market
Monthly Rent
($/apartment)
Supply
What Do You Think?
Is $1600 more than some
people can afford?
1,600
Demand
2
Copyright c 2007 by The McGraw-Hill
Companies, Inc. All rights reserved.
Quantity
(Millions of apartments/day)
Slide 57
MB MC
Rent Controls
Monthly Rent
($/apartment)
Supply
2,400
Excess demand = 2 million
apartments per month
1,600
Controlled = 800
Demand
0
Copyright c 2007 by The McGraw-Hill
Companies, Inc. All rights reserved.
1
2
3
Quantity
(Millions of apartments/day)
Slide 58
MB MC
Market Equilibrium

Rent Controls Reconsidered

Other consequences of rent controls
 Maintenance
will decline and housing quality
will fall
 Illegal payments
 Creation of co-ops and conversion to
condominiums
 Reduction in household mobility
 Discrimination
Copyright c 2007 by The McGraw-Hill
Companies, Inc. All rights reserved.
Slide 59
MB MC
Market Equilibrium

What do you think?

How can we make housing affordable for
poor people without using rent ceilings?
Copyright c 2007 by The McGraw-Hill
Companies, Inc. All rights reserved.
Slide 60
MB MC
Rent Controls
Monthly Rent
($/apartment)
Supply
1,200
What is the impact of a rent
control set at $1,200/month?
800
Demand
0
Copyright c 2007 by The McGraw-Hill
Companies, Inc. All rights reserved.
1
2
3
Quantity
(Millions of apartments/day)
Slide 61
MB MC
Price Controls
In The Pizza Market
Price
($ per slice)
Supply
4
Excess demand = 8,000 slices per day
3
Price ceiling = 2
Demand
8
Copyright c 2007 by The McGraw-Hill
Companies, Inc. All rights reserved.
12
16
Quantity
(1000s of slices per day)
Slide 62
MB MC
Market Equilibrium

Pizza Price Controls?

Market responses to a pizza price ceiling
 Long
lines
 Preferential treatment to selected customers
 Alternative pricing strategies
 Poorer quality ingredients
 Black-market pizzas
Copyright c 2007 by The McGraw-Hill
Companies, Inc. All rights reserved.
Slide 63
MB MC
Reading

http://web.archive.org/web/2007110911
1737/http://www.cnn.com/US/9706/15/r
ent.control/
Copyright c 2007 by The McGraw-Hill
Companies, Inc. All rights reserved.
Slide 64
MB MC
Price Ceiling Questions
1. Make a list of who wins and who loses under rent control.
2. What happens to all of the dissatisfied apartment-seekers? Make
a list of alternative rationing devices.
3. How do rent controls affect the following?
Amount of new rental property
Quality of rental property
Age of population
4. How would you predict residents of rent-controlled units would
vote on a referendum to repeal rent-control laws?
Copyright c 2007 by The McGraw-Hill
Companies, Inc. All rights reserved.
Slide 65
MB MC
Bellwork: Oct. 4
Are there any substitutes for gasoline?
Copyright c 2007 by The McGraw-Hill
Companies, Inc. All rights reserved.
Slide 66
MB MC
Predicting and Explaining
Changes In Prices and Quantities
Gasoline Activity:
http://www.stlouisfed.org/education_resou
rces/assets/lesson_plans/07ITV_Shifting
Curves.pdf
Copyright c 2007 by The McGraw-Hill
Companies, Inc. All rights reserved.
Slide 67
MB MC

Predicting and Explaining
Changes In Prices and Quantities
Shifts in Demand

Changes In Demand
 An
increase (decrease) in the demand for a
good will shift the demand curve to the right
(left)
Copyright c 2007 by The McGraw-Hill
Companies, Inc. All rights reserved.
Slide 68
MB MC

Predicting and Explaining
Changes In Prices and Quantities
A Change In Income

Normal Good
 One
whose demand increases (decreases)
when the incomes of buyers increase
(decrease)
Copyright c 2007 by The McGraw-Hill
Companies, Inc. All rights reserved.
Slide 69
MB MC

Predicting and Explaining
Changes In Prices and Quantities
A Change In Income

Inferior Good
 One
whose demand decreases (increases)
when the incomes of buyers increase
(decrease)
Copyright c 2007 by The McGraw-Hill
Companies, Inc. All rights reserved.
Slide 70
MB MC

Predicting and Explaining
Changes In Prices and Quantities
Factors that Shift Demand
Price of complements
 Price of substitutes
 Income
 Preferences
 Population of potential buyers
 Expectations

Copyright c 2007 by The McGraw-Hill
Companies, Inc. All rights reserved.
Slide 71
MB MC

Predicting and Explaining
Changes In Prices and Quantities
Factors that Shift Supply
Costs of production
 Technology
 Weather
 Number of suppliers
 Expectations

Copyright c 2007 by The McGraw-Hill
Companies, Inc. All rights reserved.
Slide 72