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The Berenstain Bears and the Mad, Mad, Mad Toy Craze

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The Berenstain Bears and the Mad, Mad, Mad Toy Craze

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In this lesson, students act as buyers with a fixed amount to spend on beverages. They identify a favorite beverage from a list of beverages offered for the same price. They then react to changes in the price of that favorite beverage. Students use the data collected from this activity to describe the relationship between price and quantity demanded. They analyze other examples and learn that the relationship between price and quantity demanded holds for most goods, and that this relationship is called the law of demand.

Objectives of this lesson:
Students will be able to

define consumers and price,

describe the relationship between price and the amount people are willing and able to buy as the law of demand, and

analyze why the inverse relationship between price and the amount people are willing and able to buy exists.

Compelling Question:

Why do people buy more at lower prices and less at higher prices?

This lesson plan is designed for teaching grades 3, 4, and 5.

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If you have difficulty accessing this content due to a disability, please contact us at 314-444-4662 or economiceducation@stls.frb.org.

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In this lesson, students act as buyers with a fixed amount to spend on beverages. They will learn about the relationship between price and quantity demanded.

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The Berenstaine Bears and the Mad, Mad Toy Craze 

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The Berenstaine Bears and the Mad, Mad Toy Craze 

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The Berenstain Bears' Mad, Mad, Mad Toy Craze By Stan and Jan Berenstain, Book Read Aloud

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EconEdLink - The Supply and Demand of Toy Fads

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In this economics lesson, students will examine the market responses to two different toys.

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What Is the Law of Supply and Demand?

The law of supply and demand combines two fundamental economic principles describing how changes in the price of a resource, commodity, or product affect its supply and demand.

As the price increases, supply rises while demand declines. Conversely, as the price drops supply constricts while demand grows.

Levels of supply and demand for varying prices can be plotted on a graph as curves. The intersection of these curves marks the equilibrium, or market-clearing price at which demand equals supply, and represents the process of price discovery in the marketplace.

Understanding the Law of Supply and Demand

It may seem obvious that in any sale transaction the price satisfies both the buyer and the seller, matching supply with demand. The interactions between supply, demand, and price in a (more or less) free marketplace have been observed for thousands of years.

Many medieval thinkers, like modern day critics of market pricing for select commodities, distinguished between a "just" price based on costs and equitable returns and one at which the sale was in fact transacted. Our understanding of price as a signaling mechanism matching supply and demand is rooted in the work of Enlightenment economists who studied and summarized the relationship.

Importantly, supply and demand do not necessarily respond to price movements proportionally. The degree to which price changes affect the product's demand or supply is known as its price elasticity. Products with a high price elasticity of demand will see wider fluctuations in demand based on the price. In contrast, basic necessities will be relatively inelastic in price because people can't easily do without them, meaning demand will change less relative to changes in the price.

Price discovery based on supply and demand curves assumes a marketplace in which buyers and sellers are free to transact or not, depending on the price. Factors such as taxes and government regulation, the market power of suppliers, the availability of substitute goods, and economic cycles can all shift the supply or demand curves or alter their shapes. But so long as buyers and sellers retain agency, the commodities affected by these external factors remain subject to the fundamental forces of supply and demand. Now let's consider in turn how demand and supply respond to price changes.

The Law of Demand

The law of demand holds that demand for a product changes inversely to its price, all else being equal. In other words, the higher the price, the lower the level of demand.

Because buyers have finite resources, their spending on a given product or commodity is limited as well, so higher prices reduce the quantity demanded. Conversely, demand rises as the product becomes more affordable.

As a result, demand curves slope downward from left to right, as in the chart below. Changes in demand levels as a function of a product's price relative to buyers' income or resources are known as the income effect.

Naturally, there are exceptions. One is Giffen goods, typically low-priced staples also known as inferior goods. Inferior goods are those that see a drop in demand when incomes rise because consumers trade up to higher-quality products. But when the price of an inferior good rises and demand goes up because consumers use more of it in place of costlier alternatives, the substitution effect turns the product into a Giffen good.

At the opposite end of the income and wealth spectrum, Veblen goods are luxury goods that gain in value and consequently generate higher demand levels as they rise in price because the price of these luxury goods signals (and may even increase) the owner's status. Veblen goods are named for economist and sociologist Thorstein Veblen, who developed the concept and coined the term "conspicuous consumption" to describe it.

The Law of Supply

The law of supply relates price changes for a product with the quantity supplied. In contrast with the law of demand the law of supply relationship is direct, not inverse. The higher the price, the higher the quantity supplied. Lower prices mean reduced supply, all else held equal.

Higher prices give suppliers an incentive to supply more of the product or commodity, assuming their costs aren't increasing as much. Lower prices result in a cost squeeze that curbs supply. As a result, supply slopes are upwardly sloping from left to right.

As with demand, supply constraints may limit the price elasticity of supply for a product, while supply shocks may cause a disproportionate price change for an essential commodity.

Equilibrium Price

Also called a market-clearing price, the equilibrium price is the price at which demand matches supply, producing a market equilibrium acceptable to buyers and sellers.

At the point where an upward-sloping supply curve and a downward-sloping demand curve intersect, supply and demand in terms of the quantity of the goods are balanced, leaving no surplus supply or unmet demand. The level of the market-clearing price depends on the shape and position of the respective supply and demand curves, which are influenced by numerous factors.

Factors Affecting Supply

In industries where suppliers are not willing to lose money, supply will tend to decline toward zero at product prices below production costs.

Price elasticity will also depend on the number of sellers, their aggregate productive capacity, how easily it can be lowered or increased, and the industry's competitive dynamics. Taxes and regulations may matter as well.

Factors Affecting Demand

Consumer income, preferences, and willingness to substitute one product for another are among the most important determinants of demand.

Consumer preferences will depend, in part, on a product's market penetration, since the marginal utility of goods diminishes as the quantity owned increases. The first car is more life-altering than the fifth addition to the fleet; the living-room TV more useful than the fourth one for the garage.

What Is a Simple Explanation of the Law of Supply and Demand?

Why Is the Law of Supply and Demand Important?

What Is an Example of the Law of Supply and Demand?

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Law of Supply and Demand in Economics: How It Works

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The law of supply and demand explains how changes in a product's market price relate to its supply and demand.

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EconEdLink - Sandwich Supply and Dessert Demand

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In this economics lesson, students will form a human demand and supply curve.

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KIDS BOOK READ ALOUD: LEMONADE IN WINTER - WITH LINK TO TEACHER RESOURCES

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This video teaches the concept of Demand. Demand refers to a relationship between price and the quantity of a good or service that consumers demand.

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Please click here if you are not redirected within a few seconds.

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it all began with lemonade - Google Search

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Agricultural Literacy Curriculum Matrix

Lesson Plan

Supply and Demand: What If?

Purpose

Students will demonstrate understanding of the importance of the relationship between producers and consumers by explaining how agricultural supply and demand affects commodity prices. Grades 6-8

Estimated Time

Two 45-minute sessions

Vocabulary

commodity: a primary agricultural product that can be bought and sold

consumer: a person who buys and uses goods and services

demand: a consumer's willingness and ability to buy a product

supply: how much of a good or service is available

Did You Know?

US consumers spend just 10 percent of their disposable income on food each year, while those in other countries spend much more.¹

On average, each person in the United States spends approximately $4500 per year on food.¹

There were 8268 farmers markets in 2014, a 180 percent increase since 2006.¹

Background Agricultural Connections

Farmers and consumers rely on one another. Not only would one not exist without the other, but the actions of each depend upon the actions of the other. Theirs is an interdependent relationship.

Farmers produce agricultural commodities which supply us with food, fiber (such as cotton for fabric), and some types of fuel (ethanol and other biofuels). These raw products enter into a market where price is determined by the interaction of demand and supply. A consumers' willingness and ability to buy a product (demand) and the sellers' willingness and ability to produce and sell the product (supply) determine the market price of agricultural commodities.

The demand for agricultural products is influenced by many factors, including consumer tastes and preferences. Consumers create and follow eating trends that are influenced by both scientific research and social influences. For example, discovering the health benefits of lean meats increases the demand for chicken and lean cuts of pork and beef, and decreases the demand for meat products high in saturated fats. Other dietary trends such as gluten-free and low-carb diets increase the consumption (demand) of related commodities and potentially decrease the demand for others.

Social influences also play a role in creating demand for agricultural goods. For example, some consumers prefer buying food labeled and produced in a specific way, such as free-range eggs, grass-fed beef, organic milk, etc. The number of buyers in a market impacts demand too.The more buyers in a market, the greater potential for demand. Consumer income also plays a role in potential demand.With some products, an increase in consumers' income leads to greater consumption. Similarly, a decrease in consumers' income can lead to a decrease in the consumption of non-essential foods. Availability of related goods also impacts demand.Many agricultural products have similar substitutes. For example rather than drinking cow milk, a consumer may drink soy, almond, or rice milk based upon the cost, availability, and preference of one milk over the other.

Supply is determined by the available amount of a commodity at a particular time. An increase in production costs may decrease supply. For example, if feed costs go up, farmers may sell their livestock earlier or decrease the size of their herd to reduce their expenses. Doing so will decrease the overall supply. Technology on the farm can increase agricultural supply if it improves overall production efficiency. For example, improving varieties of wheat through artificial selection and plant breeding can allow a farmer to harvest more wheat on the same amount of land, thus increasing the supply. Other factors impacting supply include taxes, subsidies, the cost of related commodities, and the number of sellers in a specific market.

An increase in the demand for a product without an increase in the supply will lead to a higher market price. An increase in the supply of a product without an increase in demand will lead to a lower price for the product.

Engage

1. Choose an item that many of your students would want, such as a video game, movie, iPod, iPad, cell phone, etc. Find an average retail price for the product and write it on the middle of your white board.

2. Ask students by the raise of hands how many of them would want that item for the average price. Record the number in the middle of the board.

3. Next, raise the price of the item and ask the students to raise their hands if they are still interested in the item for the higher price. Record the number on the far right side of the board.

4. Now lower the price to below average and count how many students are interested in the item. Summarize this activity and introduce the lesson topic. Students will learn about the basic principles of supply and demand and how supply and demand affects market prices.

Explore and Explain
Activity 1: Will It Rise or Fall?

1. Give each student one Supply and Demand Vocabulary activity sheet along with one Supply and Demand In Agriculture-Terminology handout. Allow students time to complete the activity sheet. Help students determine how to illustrate each term as needed. Once students complete the vocabulary activity sheet, they should have a basic understanding of supply and demand and the associated terms.

2. Use the Rise or Fall PowerPoint to illustrate examples of situations that make supply and demand rise and fall. With each example instruct students to give you a "thumbs up" if the supply or demand rises and a "thumbs down" if it falls. Use additional examples as necessary for student comprehension.

Activity 2: Graphing Supply and Demand Curves

1. Begin this section by doing a class activity. Get a candy bar and hold it up in front of the class. Tell students that you are going to hold an auction. Auctions sell items by starting at a low price and eventually selling to the highest bidder.

2. Begin the auction by offering the candy bar for 25 cents. Each student who is willing to pay 25 cents for the candy bar should raise his or her hand. Count the students and record the number on a graph.

3. Continue the auction by increasing the bid by 25 cents and recording how many students are willing to purchase the candy bar at each price level.

4. Continue until no students (zero) are willing to pay for the candy bar. The resulting graph will show a demand curve. The graph can be drawn on the board or created on the computer.

5. Once you have completed the example in class, pass out the Graphing Supply and Demand Curves activity sheet, and allow students time to complete it. Review math and graphing principles as necessary for successful completion.

Concept Elaboration and Evaluation

1. Elaborate on careers in advertising and marketing by gathering commercials promoting agriculture and specific food products to share and discuss with students. For example:

2. Explain that each of these commercials and ad campaigns required graphic designers, videographers, dieticians, etc. for successful completion.

Evaluate

After conducting these activities, review and summarize the following key concepts:

The economic value of agricultural products is affected by supply and demand.

Farmers depend on consumers to purchase their products and consumers depend on farmers to produce the things they need and want.

Careers in advertising and marketing help farmers sell their products and consumers find the products they want.

Recommended Companion Resources

Organization

Utah Agriculture in the Classroom

We welcome your feedback! If you have a question about this lesson or would like to report a broken link, please send us an email. If you have used this lesson and are willing to share your experience, we will provide you with a coupon code for 10% off your next purchase at AgClassroomStore.

Agricultural Literacy

Education Content Standards

Common Core Connections

Education Content Standards

Career & Technical Education (CAREER)

AFNR (Grades 6-8) Career Ready Practices

CRP.10.1 Identify career opportunities within a career cluster that match personal interests, talents, goals and preferences.

Social Studies - Economics (ECONOMICS)

Economics Standard 7 (Grades 6-8) Market and Prices

Objective (Grades 6-8) Identify markets in which they have participated as a buyer and as a seller and describe how the interaction of all buyers and sellers influences prices. Also, predict how prices change when there is either a shortage or surplus of the product available.

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Debra Spielmaker, Administrator and Yasuko Mitsuoka Grow, Designer

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Students will demonstrate understanding of the importance of the relationship between producers and consumers by explaining how agricultural supply and demand affects commodity prices. Grades 6-8