Demand, Supply and the Market
Lesson Purpose:
This lesson focuses on the suppliers and demanders, the market participants; how their behavior changes in response to incentives; and how their interaction generates prices that allocate resources in the economy. Learn about the reaction of the buyers and sellers of money, and the impact of non-price conditions (the determinants of demand and supply) creates a basis for understanding the dynamics of markets. Examination of the interaction of consumers and producers, as they respond to market conditions also generates an appreciation for the role of prices in the transmission of information that coordinates the economic response to scarcity. Market dynamics, a vital part of the students' understanding of the economy can be explained with tables and narrative, or graphics, or both - which is better suited individual learning styles. Grade Level is 12 Key Terms:
Demand
Supply
equilibrium price
shortage
Law of demand
Law of supply
market price
surplus
Demand Curve
Supply curve
market clearing price substitutes
Quantity Demanded
Quantity supplied
market quantity
Session Objectives:
Define demand and quantity demanded.
Develop graphic models of demand.
Introduce the Law of Demand.
Identify the determinants of demand.
Identify and explain common errors in thinking about demanders‟ reactions to
price incentives.
Define supply and quantity supply.
Develop graphic models of supply.
Compare/contrast the behavior of consumers and suppliers in response to price incentives.
Identify the determinants of supply.
Identify and explain common errors in thinking about suppliers‟ reactions to
price incentives.
Illustrate the determination of a market clearing price/equilibrium price under static and dynamic conditions.
Advanced Preparation by Teacher:
Buy/make cookies (or prizes of some sort) Write amount of money on a paper that each student would have Procedure: Introduction/Motivation:
I will distribute the paper which has the amount of purchasing power to the students in the class which will develop the excitement in them and would make them more attentive and attracted towards the lecture/activity. Then I will introduce or begin the class in the following manner: “Hello, I am the new owner of Mr. Chachu‟s Shop. Today I have a lovely chocolate
chip cookie. It is a home-made, delicious cookie. Unfortunately, my current stock is low. I only have one in stock, and it will go to the highest bidder. Before we get started, we need to go over how an auction works in Mr. Chachu‟s Auction House. There is no yelling or shouting during our auction. Repeat offenders will be disqualified from our auction. You must have the money that you are bidding. (If you have $10, you can bid only up to that point) There will be no combining funds with friends. To make a bid, you will need to remain seated and raise your hand quietly. There is no arguing with the auctioneer.”
Through this I will explain them that through this I have created a scenario which has created a market where the consumers are you people (students) and the seller is me. Then the idea of market would be explained that:
Markets exist when buyers and sellers interact. This interaction determines market prices and thereby allocates scarce goods and services. Students will
be able to use this knowledge to: Identify markets in which they have participated as a buyer and a seller and describe how the interaction of all buyers and sellers influences prices. Step-by-Step Plan:
The auction will be done first. I would sell all my cookies with respect to the highest bidders then I would involve students more by asking them to calculate the price at which all my stock is sold. In this they would know the point of equilibrium where the demand is equal to supply the market equilibrium point where the economy is stable. By asking these questions I would tell them the concept of demand, quantity demanded, supply and quantity supplied into the students mind and how the consumer behavior relates to this commodity and how the shortage of cookies had affected the price level. By making a graph of demand and supply that would show the relationship of the price with respect to both and the point of their interaction would make an equilibrium in the market making it stable at SUPPLY=DEMAND which is the equilibrium quantity, it will make students much clear about how the demand and supply relationship with the price and stability in the economy. Then after this I would explain to the students the following points:
Prices are the basic measures of the relative scarcity of products when prices are set by market forces (supply and demand).
A shortage occurs when buyers want to purchase more than producers want to sell at the prevailing price.
The market clearing or equilibrium price for a good or service is the one price at which quantity supplied equals quantity demanded.
If a price is above the market clearing price, it will fall, causing sellers to produce less and buyers to purchase more; if it is below the market clearing price, it will rise, causing sellers to produce more and buyers to buy less.
Now to show the increase in supply concept how it effects the price level which would cause surplus in the market. I will tell students that there was a mistake in my stock check. It turns out I have more cookies than I thought. I actually have too many cookies right now. Since I have so many extra cookies, I will sell these cookies for Rs.2 each. Why was I able to sell the first cookie for so much more than the rest?
(So because I had a low SUPPLY the amount of goods someone has to sell- and you all wanted the cookie ,there was a high DEMAND you were willing to pay more. The item was scarce or not many available, so to make sure you were able to get one, you had to pay more. When I checked my stock and found that I had a higher SUPPLY, you were able to buy the cookies for less. Why do you think this is? Since the cookies were no longer a scarce item, they were cheaper to purchase. I would take answers from the students and would then on the basis of their answers I would explain them the following things:-
In this way I would demonstrate that if supply changes with consumer demand and if supply of commodity increases it would create a surplus in the market which would make difference in a way that consumer will be willing to pay less.
A surplus occurs when producers want to sell more than buyers want to purchase at the prevailing price. An increase in the price of a good or service enables producers to cover higher per-unit costs and earn profits, causing the quantity supplied to increase, and vice versa.
Now to make sure that students have understood the concept I would put another daily life example by dividing them into the groups. I would put an example that this year‟s there is high demand of 3D televisions. Each household consumer wants it.
Given this information, what can you tell me about the supply? What can you tell me about the demand? Since there is a LOW supply and a HIGH demand, what can you infer about the price? A couple years ago, LCD‟s and Plasma‟s were really popular. Now a new television device has replaced it. The LCD‟s and Plasma‟s is no longer very popular, but while
it was popular, it was produced in a greater quantity, but before they expected
amount of selling was completed, a new device came out that was more popular. Now stores have lots of these devices, but not many people are buying them. What can you tell me about the supply? What can you tell me about the demand? Since there is a High supply and a Low demand, what can you infer about the price? I would ask each group one by one there answers and it would show the understanding of the students which would help me to elaborate these points: After that I will explain them the following points
An increase in the price of a good or service encourages people to look for substitutes, causing the quantity demanded to decrease, and vice versa. This relationship between price and quantity demanded, known as the law of demand, exists as long as the other factors influencing demand do not change.
This relationship between price and quantity supplied is normally true as long as other factors influencing costs of production and supply do not change.
Markets are interrelated; changes in the price of one good or service can lead to changes in prices of many other goods and services.
Demand for a product changes when there is a change in consumers‟ incomes or preferences, or in the prices of related goods or services, or in the number of consumers in a market.
Supply of a product changes when there are changes in the prices of the productive resources used to make the good or service, the technology used to make the good or service, the profit opportunities available to producers by selling other goods or services, or the number of sellers in a market.
Changes in supply or demand cause relative prices to change; in turn, buyers and sellers adjust their purchase and sales decisions.
Shortages of a product usually result in price increases in a market economy; surpluses usually result in price decreases.
Closure:
In the end I would explain them the following things to make sure the objective of lesson is achieved and students would be able to link up things easily which would enhance their learning by revision.
Quantity demanded (qd) is the number of items that will be purchased at a particular price.
Demand is the amount of an item people are willing and able to buy at a set of prices during a specific time period.
The determinants of demand are number of buyers, income, tastes and preferences, price expectations, and prices of substitutes and complements.
Quantity supplied (qs) is the number of items that will be offered for sale at a particular price, during a specific time period.
Law of supply
Supply is the amount sellers are willing and able to offer for sale at a set of prices.
The determinants of supply are numbers of producers, expectations, the prices of other things that could be produced, and things that determine costs of production (including resource availability and technology).
Supply determinants are also referred to as supply shifters because they change qs at all prices, as indicated by a change in the position of the supply curve.
Suppliers cannot control price; they can only control the quantity they supply.
Market prices emerge from the interaction of supply and demand.
The equilibrium, or market clearing, price is the price at which qs = qd.
Equilibrium prices change in response to changes in the determinants of supply and/or demand.
Shortage and surplus
Substitutes Before students leave I will give them handout 1 for the discussion in next class which is covering today’ s lecture and also giving students
work sheet using it as an exit slip to see how successful am as a teacher in obtaining the objective of the lecture.
Frequently Asked Questions:
Why do prices change?
If people buy more when price falls, why does a price increase indicate that demand increased?
What determines the demand / supply of a product?
If people would produce more or work longer for higher pay, why does a price (wage) decrease indicate a supply increase?
Why do producers supply less of some items at lower prices? Don‟t they need to make more to make enough money? (Why do producers supply more of some items at higher prices? Don‟t they need to make fewer to make the same amount of money?)
If price is „low‟, shouldn‟t a supplier just try to sell m ore?
Why can‟t „more‟ of an item always be supplied?
Once price is determined, why / how can it change?
What is the relationship between price, profit and resource allocation?
Is it always in the best interest of a business to raise the price of its product(s)?
Why will some people continue to buy products whose prices continue to rise?
HANDOUT 1 The Market System - Mind Map
Mind Maps have been produced to introduce topics and give students an overview of key topics being studied. This mind map introduces the Market System. The Market System - Mind Map Mind Maps have been produced to introduce topics and give students an overview
of key topics being studied. The maps can be viewed as a whole page or, for those who prefer a more linear approach, as a text version.
Demand o
Price (Pn)
o
Prices of Other Goods (Pn..Pn-1) Substitutes
Complements
o
Income (Y)
o
Tastes and Fashions (T)
o
Level and Structure of Population (P)
o
Advertising (A)
o
Expectations of Consumers (E)
Supply o
Price (Pn)
o
Prices of other goods in production (Pn..Pn-1)
Joint Supply
Alternative Supply
o
Technology (H)
o
Natural shocks (N)
o
Costs in Production (F1..Fm)
o
Expectations of Producers
o
Social Pressures
Equilibrium o
The price at which D = S
Surpluses and Shortages o
S>D
o
D
Price as a Signal o
Profitability for producers
o
Value for consumers
ASSESSMENT ACTIVITY AT THE END (EXIT SLIP) Answer the following questions: Assignment 1. Draw a supply and demand graph and label the necessary parts. Be sure to properly label the locations of price, quantity, supply, demand, equilibrium price, surplus, and shortage. Supply and Demand Graph Answer Price
Surplus
Supply
E uilibrium Demand
Shortage Quantity Choose the best answer. 2. Why does the supply curve slope up and to the right? a. As the price rises the quantity supplied by producers will fall. b. [As the price falls the quantity supplied by producers will rise.] c. As the price rises the quantity supplied by producers will rise. 3. Why does the demand curve slope down and to the right? a. As the price falls the quantity demanded by consumers will fall. b. [As the price rises the quantity demanded by consumers will fall.] c. As the price rises the quantity demanded by consumers will rise. 4. If the quantity supplied exceeds the quantity demanded, then there is a _______ in the market. a. [Surplus] b. Shortage c. Supply 5. If the quantity demanded exceeds the quantity supplied, then there is a _______ in the market. a. Supply b. [Shortage] c. Demand
TIME DISTRIBUTION EXPLAINING DEMAND A ND SUPPLY THROUGH CLA SS ROOM A CTIVITY (15 Minutes)
GROUP DISCUSSION AND A NSWERS (10 Minutes)
EXPLAINING ALL THE CONCEPTS OF THE LECTURES (10 Minutes)
QUESTION A ND AN SWER SESSION (10 Minu tes)
WORK SHEET ASSES MENT (EXIT SLIP) (5 Minutes )
FORMAN CHRITIAN COLLEGE UNIVERSITY
DEPARTMENT OF EDUCTION LESSON PLAN OF DEMAND AND SUPPLY COURSE CODE EDUC 300 SUBMITTED BY M.HASSAN SAEED 14-10419 SUBMITTED TO M.ADIL ARSHAD
