SUPPLY AND DEMAND (3.4.2) Begin End ShowTable of Contents Copyright © 2013 N.S.

SUPPLY AND DEMAND (3.4.2)

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A Fish Market“Equilibrium”

Learning TargetsEquilibrium

“Equilibrium”Learning Targets

What If Prices AreToo High?

What If Prices AreToo Low?

When Demand &Supply Change

WhenDemand Changes

WhenSupply Changes

Access PriorKnowledge

Set GoalsNew

InformationConclusion

EquilibriumIn the News

Activity

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A Fish MarketGAME DESCRIPTIONEvery day, just before dawn, at fish markets around the world, fishermen haggle over prices with restaurant owners. These are remarkable and chaotic spectacles. The most remarkable thing about it, however, may be that just about every buyer finds a willing seller and vice versa. This is because the price of each type of fish quickly converges to an equilibrium point where quantity supplied equals quantity demanded. In order to see how this happens, the classroom has been turned into a fish market. Part of the class are fishermen (sellers), who want to make money from their morning catch. The other part of the class are restaurant managers (buyers), who seek to provide quality and diversity to their restaurant’s menu for the day. Both buyers and sellers are trying to maximize their profits. Prizes will be given out for achieving each of the following.

1) Buyers with a profit of at least $20.2) Sellers with a profit of at least $20.3) Buyer who can achieve the widest variety of seafood (and still have a profit).4) Seller with the least leftover product (and still have a profit).

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A Fish Market

To enter data into this spreadsheet, click “End Show” and then double click the image.

Price Number of Transactions Total Supply Total Demand$30 0 0$31 0 0$32 0 0$33 0 0$34 0 0$35 0 0$36 0 0$37 0 0$38 0 0$39 0 0$40 0 0$41 0 0$42 0 0$43 0 0$44 0 0$45 0 0$46 0 0$47 0 0$48 0 0$49 0 0$50 0 0

CLASS DATA

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“Equilibrium” Learning Targets

ReasoningDescribe how the market equilibrium price and quantity are determined.

ReasoningDetermine the effects on equilibrium price and quantity when demand and/or supply shift.

SkillDraw shifts in supply and demand curves.

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Equilibrium1) In competitive markets, equilibrium has been reached when the quantity demanded equals the quantity supplied.

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Equilibrium

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2) Because all buyers get what they want without any leftover goods, equilibrium is called the “market-clearing price.”

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Market-Clearing Price ($40)

Exactly 30 crates are supplied and exactly 30

are purchased

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3) Markets move toward equilibrium due to competition and availability of information.

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What If Prices Are Too High?

1) If prices are above equilibrium, there is more supply than demand.

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Supply is 40

But demand is

only 20

At $44

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2) When supply exceeds demand, there is a surplus.

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At $44

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Surplus of 20

At $44

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3) In order to get rid of surplus quantity, the seller must lower the price.

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Surplus of 20

At $44

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3) In order to get rid of surplus quantity, the seller must lower the price.

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Equilibrium

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What If Prices Are Too Low?1) If prices are below equilibrium, there is less supply than demand.

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Demand is 40But supply is only 20

At $36

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2) When supply is less than demand, there is a shortage.

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At $36

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Graph ItShortage of 20

At $36

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3) With so many buyers, sellers will realize they can make more money by increasing price.

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At $36

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Graph ItShortage of 20

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3) With so many buyers, sellers will realize they can make more money by increasing price.

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Equilibrium

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When Demand Changes1) When demand increases, it will almost always be true that

a) Price increasesb) Quantity increases

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2) When demand decreases, it will almost always be true that

a) Price decreasesb) Quantity decreases

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2) When demand decreases, it will almost always be true that

a) Price decreasesb) Quantity decreases

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When Supply Changes1) When supply increases, it will almost always be true that

a) Price decreasesb) Quantity increases

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2) When supply decreases, it will almost always be true that

a) Price increasesb) Quantity decreases

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2) When supply decreases, it will almost always be true that

a) Price increasesb) Quantity decreases

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When Demand & Supply Change

1) Demand increases and supply increasesa) Price is unknownb) Quantity increases

Why Is Price Unknown?

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2) Demand decreases and supply decreasesa) Price is unknownb) Quantity decreases

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3) Demand increases and supply decreasesa) Price increasesb) Quantity is unknown

Why Is Quantity Unknown?

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4) Demand decreases and supply increasesa) Price decreasesb) Quantity is unknown

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Equilibrium In the NewsDIRECTIONSSeveral real newspaper headlines from cnn.com are listed below along with a small excerpt from the story. Each story illustrates a change in supply, a change in demand, or a change in both. For each question determine which market is being described, decide how supply and/or demand is affected, and draw the change on the graph. After you have drawn the graph, determine how price and quantity have been affected.

1) EXPERTS: $4 A GALLON GAS COMING SOON

2) BARNES & NOBLE’S NOOK FLOPS DURING HOLIDAYS

3) BEATING THE COMING WATER SHORTAGE

4) EPA STUDY SUPPORTS MORE NATURAL GAS

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“Equilibrium” Learning Targets

ReasoningDescribe how the market equilibrium price and quantity are determined.

ReasoningDetermine the effects on equilibrium price and quantity when demand and/or supply shift.

SkillDraw shifts in supply and demand curves.

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Resources

SUPPLY AND DEMAND (3.4.2) Begin End ShowTable of Contents Copyright © 2013 N.S.

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