Goals for the day:
· Be able to create and manipulate supply and demand curves
· Measure the elasticity of items under different scenarios
· Apply this to describe the market for their own products and items within Durango
I started today rolling a marble around a round surface. Eventually the marble found its way into a central cup. The marble is the equilibrium price and quantity in our market system. The actual price and quantity is changing all the time, but in a market OVER THE SHORT TERM will hover around one equilibrium.
Long-term, as the MARKET FACTORS change, the supply and demand curves will shift position on our graphs and the equilibrium price and quantity will change. In our marble example, the position of the cup will change.
We spent the first half doing a review of the supply and demand curves and these differences between SHORT-TERM changes due to PRICE and LONG-TERM changes due to MARKET FACTORS. I asked the group to test themselves by going through this worksheet that looks at the bagel market. REMEMBER that this represents the whole bagel market, with MILLIONS and MILLIONS of bagels. This doesn't refer to one business like the AHS School Store that hopes to sell bagels. Our store will pay attention to the overall bagel market so we can make smart decisions. But the supply and demand for bagels at AHS will have only a minuscule effect on the overall market. For the first half of the lesson, we're just concerned with the overall market of MILLIONS and MILLIONS of bagels.
Everyone then worked off of this worksheet to think about what MARKET FACTORS would influence the market for the product that they pitched in our tournament on Tuesday. Remember, think about the national market for hiking boots, backpacks, hoodies, thuggies, retreat centers, nutrition counseling, wood stoves, hot tubs, etc. Think about everyone around the country trying to sell these things. What would affect the overall supply and demand for these things around the country? You'll need to include what MARKET FACTORS could influence sales in your business proposal. After break, everyone added these factors to their journal.
We then dived into study of price elasticity of demand, which measures the responsiveness of demanders/buyers to changes in price. Now we are thinking about your specific business. If you put your products on sale, will people respond and come flooding in our store? Will you be inundated with online orders? If you raise the price, will you hurt business as people start shopping from the competition? Or will your number of customers stay the same so you suddenly get more revenue because you're selling at a higher price?
This is why elasticity is important. I gave people this handout to walk us through how to calculate elasticity. Here are the answers to the problems on the back page: A = 0.76, B = 0.165, C = 1.32. Test yourself. Notice how the elasticity of the product depends on the specific change in price and the direction of that change. A and B change the same amount but in different directions. Given the numbers in our example, customers will respond differently. You can use the elasticity formula to predict the result of a price change. To use this in the real world, you'll need enough data for your product in your area to create a good solid demand curve.
You can also calculate the income elasticity of demand. This is the impact of a rise in your customers income on purchases of your product.. Purchases of an income elastic product will increase as people's incomes go up. This is called a normal good (e.g. clothing). Purchases of an income inelastic product will go down when income goes up. This is called an inferior good (e.g. ramen noodles).
We also talked about products that approach perfect elasticity and are super-responsive to price changes (e.g. brand of gasoline, Arizona tea) and products that approach perfect inelasticity and aren't responsive at all to price changes (e.g. water, electricity, batteries, etc.) Because people have to buy these things, the government often regulates the price. For example, we have a public utility board that helps set electricity rates. In places where basic goods aren't regulated and private companies have tried to take advantage of the captive market and raise prices, there are often riots.
One way to build a strong, resilient economy is to help these necessities affordable for everyone.
Homework due Friday, January 23rd
Read the article on Zia Taqueria (Part 1 and Part 2). We'll use the article in class on Friday and Monday. I passed out reading questions. These are due Monday.
Come with the latest draft of your research question to work on tomorrow.
· Be able to create and manipulate supply and demand curves
· Measure the elasticity of items under different scenarios
· Apply this to describe the market for their own products and items within Durango
I started today rolling a marble around a round surface. Eventually the marble found its way into a central cup. The marble is the equilibrium price and quantity in our market system. The actual price and quantity is changing all the time, but in a market OVER THE SHORT TERM will hover around one equilibrium.
Long-term, as the MARKET FACTORS change, the supply and demand curves will shift position on our graphs and the equilibrium price and quantity will change. In our marble example, the position of the cup will change.
We spent the first half doing a review of the supply and demand curves and these differences between SHORT-TERM changes due to PRICE and LONG-TERM changes due to MARKET FACTORS. I asked the group to test themselves by going through this worksheet that looks at the bagel market. REMEMBER that this represents the whole bagel market, with MILLIONS and MILLIONS of bagels. This doesn't refer to one business like the AHS School Store that hopes to sell bagels. Our store will pay attention to the overall bagel market so we can make smart decisions. But the supply and demand for bagels at AHS will have only a minuscule effect on the overall market. For the first half of the lesson, we're just concerned with the overall market of MILLIONS and MILLIONS of bagels.
Everyone then worked off of this worksheet to think about what MARKET FACTORS would influence the market for the product that they pitched in our tournament on Tuesday. Remember, think about the national market for hiking boots, backpacks, hoodies, thuggies, retreat centers, nutrition counseling, wood stoves, hot tubs, etc. Think about everyone around the country trying to sell these things. What would affect the overall supply and demand for these things around the country? You'll need to include what MARKET FACTORS could influence sales in your business proposal. After break, everyone added these factors to their journal.
We then dived into study of price elasticity of demand, which measures the responsiveness of demanders/buyers to changes in price. Now we are thinking about your specific business. If you put your products on sale, will people respond and come flooding in our store? Will you be inundated with online orders? If you raise the price, will you hurt business as people start shopping from the competition? Or will your number of customers stay the same so you suddenly get more revenue because you're selling at a higher price?
This is why elasticity is important. I gave people this handout to walk us through how to calculate elasticity. Here are the answers to the problems on the back page: A = 0.76, B = 0.165, C = 1.32. Test yourself. Notice how the elasticity of the product depends on the specific change in price and the direction of that change. A and B change the same amount but in different directions. Given the numbers in our example, customers will respond differently. You can use the elasticity formula to predict the result of a price change. To use this in the real world, you'll need enough data for your product in your area to create a good solid demand curve.
You can also calculate the income elasticity of demand. This is the impact of a rise in your customers income on purchases of your product.. Purchases of an income elastic product will increase as people's incomes go up. This is called a normal good (e.g. clothing). Purchases of an income inelastic product will go down when income goes up. This is called an inferior good (e.g. ramen noodles).
We also talked about products that approach perfect elasticity and are super-responsive to price changes (e.g. brand of gasoline, Arizona tea) and products that approach perfect inelasticity and aren't responsive at all to price changes (e.g. water, electricity, batteries, etc.) Because people have to buy these things, the government often regulates the price. For example, we have a public utility board that helps set electricity rates. In places where basic goods aren't regulated and private companies have tried to take advantage of the captive market and raise prices, there are often riots.
One way to build a strong, resilient economy is to help these necessities affordable for everyone.
Homework due Friday, January 23rd
Read the article on Zia Taqueria (Part 1 and Part 2). We'll use the article in class on Friday and Monday. I passed out reading questions. These are due Monday.
Come with the latest draft of your research question to work on tomorrow.