Supply and Demand

1. Supply and Demand A market survey

2. Productive Resources and Scarcity • People everywhere have economic wants. We classify these wants into goods and services. • Goods are tangible items such as books, cars, carrots, paper clips, and shirts. • Services are activities that people want done for them such as haircuts, car repairs, teaching, or house cleaning. • Every society has resources which are classified in three groups. • Natural resources are gifts of nature, such as coal, water, trees, and land. • Human resources refer to the human work effort used in production. • Capital resources refer to man-made physical resources, such as buildings, tools, and equipment.

3. Productive Resources and Scarcity • Resources are limited, therefore the goods and services that can be produced from them, are limited. On the other hand, goods and services that individuals want are unlimited. • This tension between limited resources and unlimited wants lead to scarcity. • Computers, diamonds, pencils, hammers, oil, paper clips, haircuts, and bananas are all scarce because many people want them, but they are not freely available to individuals in unlimited quantities.

4. Entrepreneurship • Entrepreneurs are individuals who take calculated risks to start or expand businesses. Entrepreneurs purchase resources and then organize the production of a particular good or service. • One goal of an entrepreneur is to make a profit. Profit is the dollar amount remaining after all the costs of production have been subtracted. • An entrepreneur must satisfy the wants of the consumers. If consumer wants are not satisfied, then an entrepreneur’s business will suffer losses and will eventually fail.

5. Deciding What to Produce • Situation: Our school carnival was on April 25th. A lot of families attended the two hour carnival. There were many different things for students and families to do. • Objective: We have been given the task to improve the carnival for next year. We are going to decide what the carnival was missing. All of our groups have been given a booth at the carnival. You need to decide on a good or service for your booth. • With your group, brainstorm ideas for goods or services you could provide. Remember these goods and services should be something consumers really want and would be willing to pay for at the carnival. • Who are your consumers? Your target customers? • What is a realistic price that families will pay? • Narrow your brainstormed list to the 3-4 best choices.

6. Define and List the Criteria • Criteria will be used to select your final product choice. • For each question, give your product/service a 5, 4, 3, 2, or 1. **5 would be the highest score** • In the end, the product/service with the highest point total will be the product/service your group chooses. • Can we produce it easily? • Will consumers like it? • Will it be affordable for consumers? • Can it be profitable to produce? • Is it okay with the principal? • Would it be fun to produce? • Unless it is disqualified by one of the criteria (ex. If the principal would veto it, the good/service can’t win.)

7. Opportunity Cost • The opportunity cost is the most valuable alternative you give up when you make a choice. • In this case, your opportunity cost was the good/service that received the second highest point total. • You are giving it up to make the good/service of the highest point total. • Because productive resources are limited, there is an opportunity cost to every entrepreneurial decision. • Let’s think of some other Opportunity Cost situations. . .

8. Market Survey • Before production begins, we should get information about how many of our products prospective consumers will be willing to buy. • Businesses often conduct market surveys to get information, and our class will as well. • You will be surveying six potential consumers • Each student in your group will complete a market survey. Then, as a group, you will complete the market survey summary and the graphing market survey results forms.

9. Supply and Demand: An analysis of the market survey graph • Supply: how much of something you have. Demand: how much of something people want. • The price of something will go up if the demand goes up because the seller thinks he or she can get more money for whatever he or she is selling. • If more people want something, they will be willing to pay more for it. • How much would you pay for the newest style of shoes? • In the same way, the price will go down when the demand goes down. • How much would you pay for last season’s shoe style?

10. Important Concepts • Demand- the number of products consumers are willing to buy at different prices. • Demand Curve- a graph showing the number of products consumers are willing and able to buy at different prices. • Law of Demand- the fact that consumers will buy more of a product when its price goes down and will buy less of a product when its price goes up. • Market survey- a way to gain information about consumer preferences, including how many products consumers will buy at different prices. • Price- the amount a consumer pays to buy a good or service and the amount a business receives when it sells a good or service. • Sales Revenue- the total amount of money a business receives from selling its products.

11. Assignment • Explain your group’s project and what you learned using AT LEAST TEN of these vocabulary words. Be sure each vocabulary word stands out in your writing by circling it, underlining it, or writing it in a different color. • Want • Good • Service • Entrepreneur • Opportunity cost • Profit • Consumer • Demand • Demand curve • Market survey • Sales revenue • Law of Demand