Understanding Supply and Demand

BELL RINGER:  On a piece of paper, answer the following under "Bell Ringer" and then put them in the 3rd Block Bin:

1. Refresher: What is the difference between scarcity and shortage?
2. Think about your fictitious business and explain what product or service is supplied by you, and who demands that product or services.
3. What does the Latin phrase "ceteris paribus" mean?
4. Looking at the Supply & Demand graph (right), which of the lines is Supply and which is Demand?

Supply and Demand
As you would probably imagine, Supply and Demand are concepts that are the cornerstone of Economic Theory.  The entire concept of Economics is the study of how and why people choose to buy the things they do.  So much, in fact, that out of the 61 Tennessee Economics Standards, 6 of them specifically involve Supply and Demand.

• E.11 Define supply and demand, and provide relevant examples. (E)
• E.12 Describe the role of buyers and sellers in determining the equilibrium price. (E)
• E.13 Describe how prices of products as well as interest rate and wage rates send signals to buyers and sellers of products, loanable funds, and labor. (E)
• E.14 Explain that consumers ultimately determine what is produced in a market economy (consumer sovereignty). (C, E)
• E.17 Identify factors that cause changes in market supply and demand. (E)
• E.18 Demonstrate how changes in supply and demand influence equilibrium price and quantity in the product, resource, and financial markets. (E)

In addition to supply and demand, we will be working on the following standards:

• E.2 Explain how consumers and producers confront the condition of scarcity, by making choices that involve opportunity costs and tradeoffs. (E)
• E.4 Describe how people respond predictably to positive and negative incentives. (C, E)
• E.5 Explain that voluntary exchange occurs when all participating parties expect to gain. (E)
• E.23 Compare and contrast the following forms of business organization: sole proprietorship, partnership, and corporation. (E)

Watching the video clips, answer the following questions:  Demand and Supply Explained
Demand:

1. When the price goes _______ the quantity demanded goes _______.
2. A Demand Curve is a ________________ sloping curve.
3. What is the Substitution Effect?
4. What is the Income Effect?
5. What is the Law of Diminishing Marginal Utility?
6. The Demand Curve shifting left indicates a _______________ in quantity demanded.
7. The Demand Curve shifting right indicates a ______________ in quantity demanded.
8. What are the 5 Shifters of Demand:
1. Tastes/Preferences: ____________________________________.
2. Number of Consumers: ____________________________________.
3. Price of Related Goods: ____________________________________.
4. Income: ____________________________________.
5. Expectations: ____________________________________.
9. What are "substitutes"?
10. What are "complements"?

A clip demonstrating the Law of Diminishing Marginal Utility: Matilda: Bruce Bogtrotter
Supply:

1. When the price goes _________ for a product, the quantity producers make will __________.
2. A Supply Curve is a ________________ sloping curve.
3. The Supply Curve shifting left indicates a _______________ in quantity supplied.
4. The Supply Curve shifting right indicates a ______________ in quantity supplied.
5. What are the 5 Shifters of Supply:
1. Price of Resources: ____________________________________.
2. Number of Producers: ____________________________________.
3. Technology: ____________________________________.
4. Taxes & Subsidies: ____________________________________.
5. Expectations: ____________________________________.
6. What happens to supply for a product when the price increases?  ______________.
7. What is the Market Equilibrium ____________________________________.
8. What is a "Surplus"? ____________________________________.
9. What is a "Shortage"? ____________________________________.

Discussion & Short Answer:

Your Business:  
Using your virtual/fictitious business, describe how the following Shifters affect Demand in your business:

1. Tastes/Preferences: 
2. Number of Consumers: 
3. Price of Related Goods: 
4. Income: 
5. Expectations: 

Using your virtual business, describe how the following Shifters affect Supply in your business:

1. Price of Resources: 
2. Number of Producers: 
3. Technology: 
4. Taxes & Subsidies: 
5. Expectations: 

Download a worksheet here: WORKSHEET

Next we will have a short discussion and share some of the progress we are making on our Business Project and our Making a Difference project.

Business Project:

• What business have you come up with?
• Where would you locate your business?
• What is your target demographic?
• What design considerations (logo, colors, etc.) will you use?
• Will your business be a sole proprietorship, a partnership or a corporation?

Making a Difference:

• What is an idea you think would make your community better?
• What is an idea you think would make our school better?
• Did anything surprise you as you began thinking about how you could make a difference in your community or in your school?
• How might any these changes have an effect on the economics of your community?

Chapter 3 Assessment

Chapter 3 Assessment

• Critical Thinking (p.74): #1, 2, 3, 4
• Applying Your Math Skills (p.74): #5, 6, 7, 8
• Analyzing Documents (p.75): #1, 2, 3
• Writing About Economics (p.75): When may a government take private property for public use?
• Looking at the two farm-related graphs on page 76, how are farms changing in America?  Why do you think that is?
• Looking at the Median Weekly Earnings graph on page 78, what are some trends that you can deduce?
• Looking at the Unemployment Rates chart on page 79, how were African Americans (men and women) faring in the workplace in 2007?  How might this have affected the 2008 election?
• Looking at the Selected Personal Consumption Expenditures chart on page 81, where do Americans spend the majority of their money?  If Americans are trying to save money, which areas will they have to cut back on?  Explain.
• Unit 1 Challenge (p.82): Writing Activity

3.4: Providing a Safety Net

Chapter 3 Section 4: Providing a Safety Net

• Checkpoint (p.69): What is the goal of the government welfare programs?
• Economics & You (p.69): Identify another way that the government may use your money to help somebody else.
• Checkpoint (p.71): Identify four programs that provide cash benefits to the poor.
• Checkpoint (p.72): How does the tax law provide an incentive to help the needy?
• Section 4 Assessment (p.72): # 3, 4, 5, 6, 8, 9, 10
• Roles of the Government (p.73): What are the roles of government?

Chapter 3: Section 2 and 3

Chapter 3 Section 2: Promoting Growth and Stability

• Guiding Questions (p.56): Chart
• Graph Skills (p.57): #1 & 2
• Checkpoint (p.57): Why do government experts track the business cycle?
• Checkpoint (p.58): What three goals does the government try to meet when promoting economic strength?
• Explain "obsolescence" using a real world example [other than telephones].  
• Business by the Bootstraps (p.60): Applying Economic Principles
• Checkpoint (p.61): How does improved technology help the economy?
• Section 2 Assessment (p.61): #1, 4, 5, 6, 7, 9, 10, 11

Chapter 3 Section 3: Providing Public Goods

Assignment:

• How are Public Goods Created? (pp.64-65): #1 & 2
• Checkpoint (p.64): What two criteria must be present for a public good?
• Checkpoint (p.65): Why are public goods examples of market failure?
• Graph Skills (p.66): #1 & 2
• Checkpoint (p.67): What does the government do in response to negative externalities?
• Poster Analysis (p.67): How does this poster deal with a negative externality of being a consumer?
• Section 3 Assessment (p.67): #2, 3, 4, 5, 6, 8, 9

3.1: Benefits of Free Enterprise

This [very] old cartoon is a fun way to look at Economics -- and specifically, the concept of Free Enterprise.

It's Everybody's Business (1954)
Chapter 3 Section 1: Benefits of Free Enterprise
Assignment:

• Benefits of Free Enterprise (p.49): Chart
• What is Free Enterprise (p.50): Choose two of the characteristics and explain how they protect your freedom of choice.
• Checkpoint (p.51): What are three key economic rights that American's enjoy?
• Checkpoint (p.52): What role do consumers play in the free enterprise system?
• Free Enterprise in the World (p.52): What are the advantages and disadvantages of allowing business to operate with few government limits?
• Critical Thinking (p.53): How did the American economy provide an environment for Oscar de la Renta's success?
• Checkpoint (p.53): What Constitutional protections make it possible for American's to conduct business?
• Chart Skills (p.54): #1 & 2
• Checkpoint (p.55): Why does government place some limits on the freedom of businesses?
• Cartoon (p.55): What is this cartoonist's view of federal regulation?
• Section 1 Assessment (p.55): #1, 2, 3, 6, 7, 9, 10, 11

This video is a clip from a company called "AMWAY" -- a MLM (Multi Level Marketing) company.  It's used to showcase their company, but you can see how they use "Free Enterprise" to boast patriotism.

Free Enterprise: The American Dream

One term that this section (Chapter 3.2) discusses is Eminent Domain.Property Battle: Eminent DomainMore on eminent domain with John Stossel:

2.4: Mixed Economies

Chapter 2 Section 4: Mixed Economies

Assignment:

• What are the characteristics of a mixed economy? (p.39): Chart
• Graph Skills (p.40): #1 & 2
  
• Checkpoint (p.40): What is one reason the government plays a role in the economy?
• How does the Circular Flow of a Mixed Economy (p.40) differ from the the Circular Flow Model of a Market Economy?  Why?
• Graph Skills (p.41): #1 & 2
• Checkpoint (p.41): How are governments involved in the product market?
• Applying Economic Principles (p.42): How does the debate over helmet laws represent a conflict between different goals?  Which goal do you think should be given a higher priority?
• Checkpoint (p.43): Why is China's economy more mixed than North Korea's?
• Economics & You (p.43): List two other goods or services that are affected by legal restrictions.
• Checkpoint (p.44): Why is the United States said to have a free enterprise system?
• Section 4 Assessment (p.44): #1, 3, 4, 5, 7, 10

1. What problems does the FDA try to prevent?
2. What laws does the FDA enforce?
3. How does the FDA limit the market for medicines?

Comparing Economic Systems: Capitalism, Communism, and Socialism

Comparing Economic Systems

Until the publication of their 1848 Communist Manifesto, much of the western world followed a course where individuals owned private property, business enterprises, and the profits that resulted from wise investments. Marx and Engels pointed out the uneven distribution of wealth in the capitalist world and predicted a worldwide popular uprising to distribute wealth evenly. Ever since, nations have wrestled with which direction to turn their economies.

Capitalism

Capitalism is based on private ownership of the means of production and on individual economic freedom. Most of the means of production, such as factories and businesses, are owned by private individuals and not by the government. Private owners make decisions about what and when to produce and how much products should cost. Other characteristics of capitalism include the following:

• Free competition. The basic rule of capitalism is that people should compete freely without interference from government or any other outside force. Capitalism assumes that the most deserving person will usually win. In theory, prices will be kept as low as possible because consumers will seek the best product for the least amount of money. Does capitalism allow for government interference?
• The antitrust lawsuit against Microsoft is one way that the government has tried to promote competition. Supporters of Microsoft say that forcing Microsoft to allow companies to bundle arch-rival Netscape's web browser with Microsoft Windows is not unlike making Coca-Cola include a can of Pepsi in each six-pack it sells.
• Supply and demand. In a capitalist system prices are determined by how many products there are and how many people want them. When supplies increase, prices tend to drop. If prices drop, demand usually increases until supplies run out. Then prices will rise once more, but only as long as demand is high. These laws of supply and demand work in a cycle to control prices and keep them from getting too high or too low.

Communism

Karl Marx, the 19th century father of communism, was outraged by the growing gap between rich and poor. He saw capitalism as an outmoded economic system that exploited workers, which would eventually rise against the rich because the poor were so unfairly treated. Marx thought that the economic system of communism would replace capitalism. Communism is based on principles meant to correct the problems caused by capitalism.

The most important principle of communism is that no private ownership of property should be allowed. Marx believed that private ownership encouraged greed and motivated people to knock out the competition, no matter what the consequences. Property should be shared, and the people should ultimately control the economy. The government should exercise the control in the name of the people, at least in the transition between capitalism and communism. The goals are to eliminate the gap between the rich and poor and bring about economic equality.

Socialism

Socialism, like communism, calls for putting the major means of production in the hands of the people, either directly or through the government. Socialism also believes that wealth and income should be shared more equally among people. Socialists differ from communists in that they do not believe that the workers will overthrow capitalists suddenly and violently. Nor do they believe that all private property should be eliminated. Their main goal is to narrow, not totally eliminate, the gap between the rich and the poor. The government, they say, has a responsibility to redistribute wealth to make society more fair and just.

There is no purely capitalist or communist economy in the world today. The capitalist United States has a Social Security system and a government-owned postal service. Communist China now allows its citizens to keep some of the profits they earn. These categories are models designed to shed greater light on differing economic systems.

A funny explanation of Socialism:


Finally, a really good explanation of whether we are Socialists or Capitalists -- or not.

We Are All Socialists