C&E Unit 6: Introduction to Supply and Demand 11/13/14 Name:

STEP ONE: WHAT DO YOU THINK? (Use your own brains/the Internet for these answers!)1) How is price defined? And how are price and cost different? Price is the amount you pay for a good or service; cost is the amount of money necessary to provide it to you.2) When you go to a store in Durham, who determines the price on the price tag for that item? The owner(s) of the store: they may be local owners or may be following a corporate policy from elsewhere.3) If a store lowers the price for something you want, are you more or less likely to want to buy it? MORE likely!

Your task below: figure out how much the price to sell jelly donuts for as a school fundraiser.

STEP TWO: The chart to the left

Suppose you did a survey of students to find out how much to sell your jelly donuts for, and you got the information in the chart.

4) How many donuts do people want to buy if the price is $1? 10

5) How many donuts do people want to buy if the price is $0.50? 20

6) The information gathered in the table at left is called a demand schedule. Why do you think economists use the word demand?Demand is about desire – it doesn’t mean you will buy it, but rather you desire to buy.

7) Is the word demand connected to the words buyers and consumers, or the words sellers and producers?Demand is a buyer’s term. Mnemonic: Always remember: Buyers & Consumers Demand

STEP THREE: The chart to the left

Suppose you did a survey of donut makers to find out how much it would cost to buy jelly donuts from them, and you got the information in the chart.

4) How many donuts do makers want to sell if the price is $1? 20

5) How many donuts do makers want to sell if the price is $0.50? 10

6) The information gathered in the table at left is called a supply schedule. Why do you think economists use the word supply?This is the amount that producers are willing to offer (supply) at a given price.

7) Is the word supply connected to the words buyers and consumers, or the words sellers and producers?Supply is a seller’s term. Mnemonic: In the word SUPPLY, you see an S for Sellers and a P for producers.

Using two different color implements – pen & pencil, colored pencils - plot the following in the graph(left):8a) number of donuts that people want to buy at each price. (one color)8b) number of donuts that suppliers want to supply at each price. (another)8c) Connect the dots in 8a and in 8b so they form a line (curve).The curves should intersect at 75¢ (y-axis) and 15 (x-axis)

8d) Put a star where the two lines intersect. This point of intersection is called the equilibrium price. Equilibrium price occurs where the quantity demanded (QD) and quantity supplied (QS) are the same.

8e) What is the equilibrium price in this example? 75¢

9) Complete these statements:As price goes up, demand goes DOWN; as price goes down, demand goes UP (Hint: think like a buyer.)As price goes up, supply goes UP; as price goes down, supply goes DOWN (Hint: think like a seller.)

10) In other words:

- when prices are falling, buyers are MORE willing to buy the product; and sellers are LESS willing to sell the product.

- when prices are rising, buyers are LESS willing to buy the product; and sellers are MORE willing to sell the product.

11. What would happen to the demand if your teacher gave everyone extra credit for buying a donut, so ten more donuts would be demanded at each price?

(That is, look back at the first demand table, and add ten at every price.)

Quantity of donuts demanded Price for each donut15 1.2520 125 .7530 .5035 .25

12. What would happen to the supply if the price of sugar suddenly increased due to a shortage, so that five fewer donuts were supplied at every price?

(That is, look back at the first supply table, and subtract five at every price.)

Quantity of donuts supplied Price for each donut20 1.2515 110 .755 .500 .25

13) *** DRAW TWO NEW CURVES BASED ON THE INFO YOU SUPPLIED IN Q10 and Q11

13a) Using one color, plot the number of donuts that people want to buy at each price. Connect the dots into a line (curve).

13b) Using another color, plot the number of donuts that suppliers want to supply at each price. Connect the dots into a line (curve).

13c) Put a star where the two lines intersect. This point of intersection is the new equilibrium price. Remember, equilibrium price occurs where the supply and demand are the same.

14) What is the NEW equilibrium price in this example? How does it compare to the previous one (in Q8)? How has the quantity changed (or did it)? Price = about $1.13 - it’s gone up (it was 75¢)Quantity = 17 or 18 – it’s also gone up (was 15)

15) Briefly summarize the relationship between supply, demand, and price.