AIM03

CHAPTER 3

Supply, Demand, and Price: The Theory

Chapter 3 begins our discussion of one of the cornerstones of economics: supply and demand analysis. In this chapter, the author focuses on the theory of consumer demand and supply, describing the basics of supply and demand, the importance of understanding these concepts, and the various factors that affect the decisions of consumers and producers. The theory portion of the chapter concludes by combining supply and demand in the market, introducing the concepts of equilibrium and disequilibrium, and discussing the consequences of surpluses and shortages. The rest of the chapter provides applications for the theory of supply and demand introduced in this chapter.

CHAPTER OBJECTIVES

Upon completing this chapter, your students should be able to:

1. Define demand, supply, the law of demand, and the law of supply.

2. Identify the factors that can change demand.

3. Identify the factors that can change supply.

4. Explain how equilibrium price and quantity are determined in a market.

5. Work with supply and demand to predict prices.

6. Identify and discuss the effects of price ceilings and price floors.

KEY TERMS

• demand • complements

• law of demand • own price

• demand schedule • supply

• demand curve • law of supply

• normal good • supply curve

• inferior good • supply schedule

• substitutes • subsidy

• surplus (excess supply) • disequilibrium

• shortage (excess demand) • equilibrium

• equilibrium price (market-clearing price) • price ceiling

• equilibrium quantity • tie-in sale

• disequilibrium price • price floor

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CHAPTER OUTLINE

I. DEMAND—Demand revolves around the concept of a purchaser’s willingness and ability to buy a particular good/service. We distinguish between quantity demanded—the amount of a good that individuals are willing and able to buy at a particular price at a particular time—and demand, which is the quantity demanded at all prices during a specific time period.

A. The Law of Demand—The law of demand holds that as the price of a good rises, the quantity demanded of the good falls, and as the price of a good falls, the quantity demanded of the good rises, ceteris paribus. That is, the price of a good and the quantity demanded of that good are inversely related, ceteris paribus.

B. Absolute vs. Relative Prices—Prices of goods can be measured in two ways. The absolute price is the money price ($3). The relative price is the price of one good measured in terms of another (e.g., the burrito price of a taco is 1/2 burrito/taco).

1. The relative price of good X in terms of Y is calculated by dividing the absolute price of good X by the absolute price of good Y.

C. Quantity Demanded and Price—Quantity demanded falls as price rises. One reason is relative price changes. When the price of one good rises, ceteris paribus, consumers will substitute lower-priced goods. The second reason is because of diminishing marginal utility.

1. Diminishing Marginal Utility—As a person consumes more of a good, the additional utility of consuming more will eventually decrease. This means that to encourage additional consumption, price must fall.

D. Representing Demand

1. The Demand Schedule—a numerical tabulation of the quantity demanded of a good at different prices. (See Exhibit 1a.)

2. The Demand Curve—the graphical representation of the relationship between the quantity demanded of a good and the price of the good. (See Exhibit 1b.)

E. The Individual and Market Demand Curves—An individual demand curve represents the price-quantity demanded combinations for a single buyer, such as Smith or Jones. The market demand curve represents the price-quantity demanded combinations for all buyers of a particular good. It is the summation of all of the individual demand curves for a particular item. (See Exhibit 2.)

F. Determinants of Demand—There are certain determinants of demand. These are:

1. Income—As a person’s income rises, her ability to purchase a given good also rises; as income falls, ability to purchase falls. However, demand requires both ability and willingness to buy. The actual effect of a change in income on demand depends upon whether the good in question is considered “normal” or “inferior” by the consumer.

Supply, Demand, and Price: The Theory 35

a. Normal Goods—A normal good is one that is consumed voluntarily, and for which demand will rise as income rises and fall as income falls. In this most prevalent case, an increase in income will shift the demand curve to the right, and a decrease will shift the demand curve to the left. (See Exhibit 3.)

b. Inferior Goods—An inferior good is one for which demand will fall as income rises and rise as income falls.

2. Preferences—People’s preferences affect their willingness to buy a good at any given price. A change in preferences in favor of a good will increase demand (shift the demand curve to the right). A change away from the good will do the opposite.

3. Prices of Related Goods

a. Substitutes—Two goods are considered substitutes if they satisfy similar needs or desires, such as butter and margarine. If the price of a good rises, the demand for its substitute(s) will rise; if the price of a good falls, the demand for its substitute(s) will fall. (See Exhibit 4a.)

b. Complements—Two goods are complements if they are consumed jointly, such as hamburger meat and hamburger buns. If the price of a good rises, the demand for its complement(s) will fall; if the price of a good falls, the demand for its complement(s) will rise. (See Exhibit 4b.)

4. Number of Buyers—The demand for a good in a particular area is related to the number of buyers in that area. If the number of buyers increases, demand will increase (shifting the demand curve to the right). If the number of buyers decreases, demand will fall (shifting the demand curve to the left).

5. Price Expectations—Finally, expectations about future price movements will affect consumer demand. If prices are expected to rise, current demand will increase. If prices are expected to fall, current demand will decrease.

G. Change in Demand vs. Change in Quantity Demanded—A change in demand refers to a shift in the demand curve brought about by a change in any of the nonprice determinants of demand mentioned above. (See Exhibit 5a.) A change in quantity demanded refers to a movement along a single demand curve in response to a change in the own price of the good. (See Exhibit 5b.)

II. SUPPLY—Supply revolves around the concept of a producer’s willingness and ability to provide a particular good/service. Quantity supplied is the amount of a good that producers are willing and able to sell at a particular price at a particular time, and supply is the quantity supplied at all prices during a specific time period.

A. The Law of Supply—The law of supply holds that as the price of a good rises, the quantity supplied of the good rises, and as the price of a good falls, the quantity supplied of the good falls, ceteris paribus. That is, the price of a good and the quantity demanded of that good are directly related, ceteris paribus.

B. The Supply Curve—The supply curve is the graphical representation of the relationship between the quantity supplied of good X and the price of good X. In many cases, the supply curve is upward sloping, indicating that quantity supplied will increase as price increases. (See Exhibit 7.) However, in some cases the supply curve is vertical, suggesting that supply is fixed regardless of price. The reason for such a situation may be that it takes time to produce additional output,

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such as the theater example in Exhibit 8a, or that no more of the good can be produced, as in Exhibit 8b.


C. The Individual and Market Supply Curves—An individual supply curve represents the price-quantity supplied combinations for a single producer, such as Brown or Alberts in Exhibit 9a. The market supply curve represents the price-quantity supplied combinations for all producers of a particular good. It is the summation of all of the individual supply curves for a particular item. (See Exhibit 9b.)

D. Determinants of Supply—Much as in the case of demand, a number of factors affect supply.

1. Prices of Relevant Resources—All goods and services require resources—inputs such as labor, capital, land, etc.—in their production. If the price of an input rises, the supply curve of good X will shift to the left, indicating that less will be produced at any given price. If the price of an input falls, the supply curve of good X will shift to the right.

2. Technology—In Chapter 2 we said that an advance in technology refers to the ability to produce more output with a fixed amount of resources. Under such circumstances, the per-unit cost of production falls, shifting the supply curve to the right.

3. Number of Sellers—The supply of a good in a particular area is related to the number of sellers in that area. If the number of sellers increases, supply will increase (shifting the supply curve to the right). If the number of sellers decreases, supply will decrease (shifting the supply curve to the left).

4. Price Expectations—If the price of a good is expected to be higher in the future, producers may cut back on current production in order to sell more at the high price in the future (i.e., supply curve shifts left). If prices are expected to fall, current production will increase, shifting the supply curve to the right.

5. Taxes and Subsidies—Some taxes increase per-unit costs, leading to a leftward shift in the supply curve for the affected good(s). Some subsidies reduce per-unit costs, leading to a rightward shift in the supply curve for the affected good(s). Removing the tax or subsidy in question would, logically, have the opposite effect.

6. Government Restrictions—Quotas, licensing, and other efforts to restrict supply will shift the supply curve to the left (and possibly make them vertical over some or all of the relevant range). Removing/relaxing such restrictions will increase supply, leading to a rightward shift in the supply curve.

E. Change in Supply vs. Change in Quantity Supplied—A change in supply refers to a shift in the supply curve brought about by a change in any of the nonprice determinants of supply mentioned above. (See Exhibit 11a.) A change in quantity supplied refers to a movement along a single supply curve in response to a change in the own price of the good. (See Exhibit 11b.)

III. PUTTING SUPPLY AND DEMAND TOGETHER

A. Supply and Demand: The Auction Model—The notion of supply and demand that has been handed down through the years functions much like an auction. As Exhibit 12 and the corresponding discussion in the text relate, buyers and sellers “bid” prices up and down until the quantity supplied at a particular auction price exactly equals the quantity demanded at that same price. There is one price at

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which quantity supplied equals quantity demanded, and the market is always working toward that point.


B. Equilibrium—That blissful price, where quantity supplied just equals quantity demanded, is called the equilibrium (or “market-clearing”) price, and the general condition is called equilibrium (identified by point E in Exhibit 13).

C. Disequilibrium—Any price at which quantity supplied and quantity demanded are not equal is a disequilibrium price, and the general condition is called disequilibrium.

1. Surplus/Excess Supply—If the quantity supplied at a given price is greater than the quantity demanded at that price, a surplus exists, and the market price must be lowered in order to eliminate any “excess” supply. (In Exhibit 12, a surplus exists at $6.00, $5.00, and $4.00.)

2. Shortage/Excess Demand—If the quantity demanded at a given price is greater than the quantity supplied at that price, a shortage exists, and the market price must rise in order to eliminate any “excess” demand. (In Exhibit 12, a shortage exists at $1.25 and $2.25.)

3. Moving to Equilibrium—If a surplus exists, price must fall in order to entice additional quantity demanded and reduce quantity supplied until the surplus is eliminated. (See Exhibit 13.) If a shortage exists, price must rise in order to entice additional supply and reduce quantity demanded until the shortage is eliminated. (See Exhibit 13.)

D. Consumers’ and Producers’ Surplus—Consumers’ and producers’ surpluses are discussed in terms of their relationships to equilibrium.

1. Consumers’ surplus—is the highest price a buyer is willing to pay minus the price actually paid. Graphically, consumers’ surplus is the triangular area under the demand curve, but above the equilibrium price.

2. Producers’ surplus—is the difference between the equilibrium price and the lowest price the seller would accept.

3. At equilibrium, the values of consumers’ and producers’ surpluses are maximized—That is, no other price of exchange would yield larger values for these two numbers.

E. Changes in Equilibrium Price and Quantity—Equilibrium price and quantity are determined by the interaction of supply and demand. A change in supply, or demand, or both, will necessarily change the equilibrium price, quantity, or both, unless the change in supply and demand perfectly offset one another so that equilibrium remains the same (highly unlikely). Exhibit 16 illustrates eight different cases of changing equilibrium price and/or quantity.

IV. PRICE CONTROLS—The market is not always allowed to operate freely, and thus the ability of price to properly execute the tasks we just discussed is restricted. There are two principal forms of price control: price ceilings and price floors.

A. Price Ceilings—A price ceiling is a government-mandated maximum price above which legal trades cannot be made. If the price ceiling is set below the “natural” equilibrium price for the market in question, any or all of the following may arise:

1. Shortages—At any price below equilibrium, the quantity demanded will exceed the quantity supplied, thus a shortage occurs. (See Exhibit 17.) Furthermore, the natural tendency of the market to correct for the shortage by raising price is thwarted by the ceiling; thus any shortage will likely be sustained.

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2. Fewer Exchanges—At any price other than the equilibrium price, the quantity sold will always be the lesser of quantity supplied and quantity demanded, since you cannot sell what won’t be bought, nor can you buy what is not for sale. As long as the supply curve is not vertical, the quantity of goods sold will be less with a ceiling than would have been true at the equilibrium price.

3. Nonprice Rationing Devices—Since a price ceiling creates a shortage, and price is no longer capable of fully rationing the distribution of the good, nonprice rationing devices, such as “first-come, first-served” or ration stamps, will likely develop.

4. Buying and Selling at a Prohibited Price—Price ceilings often give rise to black markets. Consumers who are willing to pay a price above the ceiling, to be assured of getting the good, can arrange illicit transactions.

5. Tie-in Sales—Price ceilings often prompt the use of tie-in sales, where one good may be purchased only if another good is purchased with it. For example, to evade rent control, many landlords require potential tenants to rent furniture (uncontrolled price) along with their (price-controlled) apartment.

B. Price Ceilings and the Distortion of Incentives and Information—Price ceilings distort normal economic incentives, often prompting consumers to prefer higher prices to lower prices, if the lower price carries with it all of the potential disruption of a price ceiling. Furthermore, price ceilings distort information by making the availability of the price-controlled good seem greater than it actually is, since low price is supposed to be an indicator of relatively greater availability.

C. Price Floors—A price floor is a government-mandated minimum price below which legal trades cannot be made. If a price floor is set above the equilibrium price, the following two effects arise:

1. Surpluses—At any price above equilibrium, the quantity supplied will exceed the quantity demanded, thus a surplus occurs. (See Exhibit 18.) Furthermore, the natural tendency of the market to correct for the surplus by lowering price is thwarted by the floor; thus, any surplus will likely be sustained.

2. Fewer Exchanges—At any price other than the equilibrium price, the quantity sold will always be the lesser of quantity supplied and quantity demanded, since you cannot sell what won’t be bought, nor can you buy what is not for sale. As long as the demand curve is not vertical, the quantity of goods sold will be less with a floor than would have been true at the equilibrium price.

V. INTERNET APPLICATIONS

Students visit the following Internet sites in the chapter: WWW.ATTWS.COM, w3.access.gpo.gov/eop, stats.bls.gov, www.century21.com.


ANSWERS TO CHAPTER QUESTIONS

1. True or false? As the price of oranges rises, the demand for oranges falls ceteris paribus. Explain your answer.

False. There is a big difference between the terms demand and quantity demanded. Quantity demanded refers to the amount of a good consumers are willing and able to buy at a particular price. Demand refers to the demand curve, depicting the quantity demanded at all possible prices. The statement holds that a change in the price of oranges can shift the demand curve for oranges. In fact, while a number of factors may shift the demand curve, a good’s own price is not one of them. The only thing that a good’s own price can change is quantity demanded. This change is represented by a movement along the existing demand curve.

2. “The price of a bushel of wheat was $3.00 last month and is $3.70 today. The demand curve for wheat must have shifted rightward between last month and today.” Discuss.

Not necessarily. Both supply and demand determine price. It is possible that price rose due to a rightward shift in the demand curve for wheat (see Exhibit 15), but it is also possible that the price rose due to a leftward shift in the supply curve of wheat (see Exhibit 15). A number of different combinations of supply and demand changes can raise price, and the suggested explanation is only one of them.

3. “Some goods are bought largely because they have ‘snob appeal.’ For example, the residents of Palm Beach gain prestige by buying expensive items. In fact, they won’t buy some items unless they are expensive. The law of demand, which holds that people buy more at lower prices than at higher prices, obviously doesn’t hold for Palm Beachers. In short, the following rule applies in Palm Beach: high prices, buy; low prices, don’t buy.” Discuss.

Maybe Palm Beachers do buy only expensive items, but this only means that they have a preference for expensive items—perhaps because there is some “snob appeal” associated with the item. The law of demand does not rule out such a preference. The relevant question is whether Palm Beachers buy more or fewer high-priced items as the prices of these items rise even further, ceteris paribus. That is, even though they may all prefer $45,000 Lexus LS400s to $25,000 Mazda 929s, will they continue to buy even more Lexuses if their price rises to $50,000? If the law of demand holds true, the answer should be “No.”

4. “The price of T-shirts keeps rising and rising, and people keep buying more and more. T-shirts must have an upward-sloping demand curve.” Identify the error.

This problem was discussed in Exhibit 6. People may observe higher prices and higher sales, but the higher prices do not cause the higher sales. Look back at Exhibit 6a. Price is higher at B than at A, as is quantity demanded. Does this mean the demand curve is upward sloping? Not at all. Point A is on one demand curve, and Point B is on another.

5. Predict what would happen to the equilibrium price of marijuana if it were legalized.

The production, sale, and purchase of marijuana are currently illegal. Some people probably do not buy marijuana at present because it is illegal. We would expect the

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legalization of marijuana to increase the number of buyers, shifting the demand curve to the right. Using the same logic, we would expect the number of sellers to increase, shifting the supply curve to the right as well. If the demand curve for marijuana shifts rightward more than the supply curve shifts rightward, the equilibrium price of marijuana rises. If the demand curve shifts rightward by less than the supply curve shifts rightward, then the equilibrium price of marijuana would fall. Many people feel that legalization would likely increase supply by more than it increases demand, causing equilibrium price to be lower than at present.

6. Compare the ratings for television shows with prices for goods. How are ratings like prices? How are ratings different from prices? (Hint: How does rising demand for a particular television show manifest itself?)

Television ratings are similar to prices in that they reflect consumer demand for the product. That is, if consumers like the show, the ratings will most likely be high, if consumers do not like the show, ratings will likely be low. Furthermore, only those who can afford to watch the show are counted in the ratings; thus, ratings reflect both the willingness and, to some extent, the ability to “consume” television.

The most striking departure lies in the fact that ratings do not translate into a price to be paid by the television consumer. For instance, it doesn’t cost any more to watch “The Simpsons” than it does to watch reruns of “Mr. Ed” on Nick at Nite. The interesting twist is that those ratings do affect the price to advertisers of hawking their wares to the viewing public, but the viewer is not directly affected. (It might also be interesting here to consider cable television and pay-per-view events.)

Ratings are tied directly to the price of advertisements. Contracts with the network price ads based on the ratings of the television program. Therefore, the ratings are in effect the price of the ad to the advertiser.

7. Do you think the law of demand holds for criminal activity? Do potential criminals “buy” less (more) crime, the higher (lower) the “price” of crime, ceteris paribus? Explain your answer.

Except for genuine sociopaths and persons whose mental capacity is either temporarily or permanently impaired, a reasonable argument can be made that many criminals—and certainly “professional” criminals—take into account the likelihood of being caught and punished when they decide whether to commit a given crime. Given that assumption, if we consider the expected punishment—that is, the likelihood of being punished multiplied by the cost of punishment to the would-be criminal—to be the “price” of crime, it seems reasonable that the greater the perceived cost, the less crime most criminals will “buy.”

8. Many movie theaters charge a lower admission price for the first show on weekday afternoons than for a weeknight or weekend show. Explain why.

If theater owners are rational, then it must be because they perceive a surplus of seats for early shows. There are two reasons. First, the physical number of available viewers is lower, because much of the viewing public is working or in school during the early show—thus, the number of buyers is lower than at “prime” times. Second, those potential viewers who are available at the early show are likely to have less money to spend, since a large portion of them would probably be either children or nonwage earners—thus, the income level of the average potential viewer is low. Both of these causes suggest that the quantity of seats supplied will greatly exceed the quantity of seats demanded at the full ticket price. Therefore, a rational theater owner faced with a surplus of seats does the only logical thing: he cuts the price.


9. A Dell computer is a substitute for a Compaq computer. What happens to the demand for Compaqs and the quantity demanded of Dells, as the price of a Dell falls?

As the price of a Dell falls, the quantity demanded of Dells rises (that is, we move from one point on the demand curve for Dells to another point on the same curve), and the demand falls for Compaqs (that is, the demand curve for Compaqs shifts to the left).

10. Describe how each of the following will affect the demand for personal computers: (a) a rise in incomes (assuming computers are a normal good); (b) a lower expected price for computers; (c) cheaper software; (d) computers become simpler to operate.

(a) raise demand

(b) lower current demand

(c) software is a complement to computers; cheaper software would increase the demand for computers

(d) if computers become easier to operate, we’d expect that peoples’ preferences would become more favorable toward computers and the demand for computers would rise

11. Describe how each of the following will affect the supply of personal computers: (a) a rise in wage rates; (b) an increase in the number of sellers of computers; (c) a tax placed on production of computers; (d) a subsidy placed on the production of computers.

(a) supply decreases when resource prices rise; (b) supply increases; (c) supply decreases; (d) supply increases

12. The law of demand specifies an inverse relationship between price and quantity demanded, ceteris paribus. Is the “price” in the law of demand “absolute price” or “relative price”? Explain your answer.

Either, since we employ the ceteris paribus condition.

13. Use the law of diminishing marginal utility to explain why demand curves slope downward.

As people consume more of a good, eventually they get less utility (satisfaction) from consuming another unit of the good. As they value each additional unit less, they will be willing to pay less for each additional unit. The lower willingness to pay equates to a demand curve that has higher quantities associated with lower prices.

14. Explain how the market moves to equilibrium in terms of shortages and surpluses and in terms of maximum buying prices and minimum selling prices.

If a shortage exists, the market price is below the minimum selling price for many producers. Consumers will compete for the limited quantity of the good that is available and they will bid up the price until the market price reaches equilibrium. If a surplus exists, the market price is above the maximum buying price of many consumers. Sellers will compete for the few consumers by lowering their prices until the market price reaches equilibrium.

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15. Identify what happens to equilibrium price and quantity in each of the following cases:

(a.) demand rises and supply is constant – equilibrium price rises and quantity rises

(b.) demand falls and supply is constant – equilibrium price falls and quantity falls

(c.) supply rises and demand is constant – equilibrium price falls and quantity rises

(d.) supply falls and demand is constant – equilibrium price rises and quantity falls

(e.) demand rises by the same amount that supply falls – equilibrium price rises and quantity is unchanged

(f.) demand falls by the same amount that supply rises – equilibrium price falls and quantity is unchanged

g. demand falls by less than supply rises – equilibrium price falls and quantity falls

h. demand rises by more than supply rises – equilibrium price rises and quantity rises

i. demand rises by less than supply rises – equilibrium price falls and quantity rises

j. demand falls by more than supply falls – equilibrium price falls and quantity falls

k. demand falls by less than supply falls – equilibrium price rises and quantity falls

WORKING WITH NUMBERS AND GRAPHS

1. If the absolute price of good X is $10 and the absolute price of good Y is $14, then what is the relative price of good X in terms of Y and the relative price of good Y in terms of good X?

Relative Price of X in terms of Y = 10/14

Relative Price of Y in terms of X = 14/10

2. Price is $10, quantity supplied is 50 units, and quantity demanded is 100 units. For every $1 rise in price, quantity supplied rises by 5 units and quantity demanded falls by 5 units. What is the equilibrium price and quantity?

At a price of $15, quantity supplied would be 75 units and quantity demanded would also be 75 units.

3. Draw a diagram that shows a larger increase in demand than the decrease in supply.

See Exhibit 19(g).

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4. Draw a diagram that shows a smaller increase in supply than increase in demand.

5. At equilibrium in the following figure, what area(s) does consumers’ surplus equal? Producers’ surplus?

Consumers’ surplus: A + B + C + D + EProducers’ surplus: F + G + H + I + J

6. At what quantity in the figure above is the maximum buying price equal to the minimum selling price?

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7. Diagrammatically explain why there are no exchanges in the area where the supply curve is above the demand curve.

At the selected quantity, the minimum selling price is P2, the maximum buying price is P1, so no exchanges will occur.

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8. In the following figure, can the movement from point 1 to point 2 be explained by a combination of an increase in the price of a substitute and a decrease in the price of non-labor resources? Explain your answer.

Yes. Demand increases when the price of a substitute rises, and supply increases when resource prices fall. As long as the demand shift is greater than the supply shift, point 2 is possible.

9. The demand curve is downward sloping, the supply curve is upward sloping, and the equilibrium quantity is 50 units. Show on a graph that the difference between the maximum buying price and minimum selling price is greater at 25 units than at 33 units.

At 25 units, the difference is P2 – P1. At 50 units, the difference is 0. Since 33 units is between 25 and 50 units, the difference will be closer to 0 (smaller) than at 25 units.

10. Diagrammatically show and explain why a price ceiling that is above the equilibrium price will not prompt a tie-in sale.

In this market, all buyers and sellers exchange below the price ceiling at the equilibrium price. Therefore, the ceiling has no effect on the market.



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ANSWERS TO SELECTED INTERNET APPLICATIONS

Many of the answers to questions will vary by the location of the students or the date they do the exercise. However, the following data may be useful:

1. France has higher unemployment, lower earnings, and higher taxes, all of which should encourage people to do their own home repairs as their opportunity costs are lower.

2. An ocean front city such as San Diego has a limited amount of land at any given distance from the sea. Land prices will therefore be very high near to the ocean, and decline as we move inland. An inland city can expand in all directions, and so land prices will be low around the periphery of the city, and housing prices in general should be lower.

LECTURE SUPPLEMENTS

Becker, Gary. “Housing Projects and Rent Control Should Crumble.” Business Week, August 4, 1997, p. 20.

Becker examines the issues of rent control in New York and government-sponsored housing projects in general and compares them to a system of vouchers to assist the poor in finding affordable housing. Becker concludes the market system will work better for the needy if the government gives them vouchers good for rent payments in the location of their choosing.

Grover, Ronald, and Elizabeth Lesly. “Unfortunately, Elvis Is Dead.” Business Week, September 1, 1997, pp. 34–35.

This article talks about the changing fortunes of music industry companies based on the evolving tastes of music buyers. The numbers can be used to demonstrate the relative importance of price and taste in this industry. It provides information about how the industry compensates, including cost-cutting measures and pricing.

Becker, Gary. “Working Women’s Staunchest Allies: Supply and Demand.” In Gary Becker, The Economics of Life, McGraw-Hill, 1996, pp. 129–130.

Becker argues that the market, not the government, is the best hope for equality in the labor market between men and women. He provides some statistics to back up his propositions and attempts to show that intervention to help one group of women will not help all (and cannot be gender neutral).

Carey, John. “In This Drug War, Consumers Are the Casualties.” Business Week, August 25, 1997, p. 46.

Consumers prefer to buy generic drugs because of their lower price. Drug companies fighting in the courts to legally prevent generics or arguing with the regulators to prevent their certification as acceptable for human use. This results in lessened competition and higher prices.


Internet SitesTry these for some examples of issues your students see today:http://cnnfn.comhttp://www.wsj.com

http://www.businessweek.com

http://www.dismal.com

Market simulation program at http://www.frbsf.org in its economic education section.

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