Supply and Demand

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Where’s the Beef?

Understanding Supply and Demand

The cattle industry was very profitable in

Texas, and many people became wealthy in the ranching business.

The cattle drives in

Texas were a perfect example of a concept called

Supply is how much of something that is available.

If you have five cows, you have a supply of five.

Demand is how much of something people want.

If you have

five cows, but your customer wants eight, then your demand is more than your supply.

Scarcity is when the supply does not meet the demand.

If the product is scarce, it affects the price of the item.

Two basics rules of supply and demand:

1. If the demand for the product is more than the supply , the price may increase.

2. If the supply of the product is more than the demand , the price may decrease.

After the Civil War, there were large herds of cattle in Texas. cattle ranchers could only sell cattle for $4 a head in Texas. But...

Overhead and Profit

Overhead

is the total cost of a product including the cost of the product itself and any costs related to maintaining that product until it is sold.

Profit

is the difference between the overhead cost and the amount the product is sold for.

…buyers in the North were willing to pay $40 per head. cities in the North were more populated and needed food.

Texas ranchers wanted to sell their cattle to the markets in the North for a higher price...

there wasn’t a way to transport the cattle to market.

In the late 1800’s, railroads didn’t come all the way to Texas.

Railroads (and railheads) were in

Kansas and Missouri.

So...

Ranchers created cattle drives to meet with the railroads.

Once railroads came to

Texas, cattle drives stopped.

The cattle industry was in a “boom” cycle during the cattle drives.

The industry continued in the “boom” cycle even though cattle drives had stopped.

Even though there have been some slow economic periods, the cattle industry still remains a major part of the Texas economy.

Supply and Demand Activity

You own 100 head of

Angus cattle.

You bought them for $5 each.

Each cow eats 20lb of feed each day.

Each lb of feed costs 10 cents.

In 30 days, you can sell your cows for $100 each at the railhead in

Ellsworth, Kansas.

Calculate how much overhead (total cost of cattle) you will need to get your cows to the railhead.

Calculate how much you will sell your herd for.

Calculate the profit from your sale.

What if…

• One month after the sale, you learn that people in the northeast really like your beef.

• However, you can only handle 100 head of cattle at a time.

• Your overhead will remain the same, but you have many requests for your beef.

• Write a paragraph explaining what you could do now, and why you could do it.

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