Supply and Demand (4)

Question 1

What is a MARKET?

Answer 1

Anywhere buyers and sellers meet to exchange goods and services.

Question 2

What’s VOLUNTARY EXCHANGE?

Answer 2

Buyers and sellers willingly make exchanges because they value what they get more than what they trade for it.

Question 3

What happens if farmers produce too many strawberries?

Answer 3

1. Their prices go down as sellers try to sell them off…
2. Farmers make less profit so…
3. They try producing something else, like lettuce.

Question 4

What happens if farmers don’t produce enough strawberries?

Answer 4

1. Buyers offer more $ (they’re more desperate)…
2. So farmers have an incentive to produce more, but…
3. More strawberries = less desperate buyers = lower $

Question 5

What are PRICE SIGNALS?

Answer 5

What happens, for instance, with strawberry production:

1. The market (buyers/sellers/products)…
2. …creates information (demand, prices, availability)…
3. …that guides the way resources are distributed.

Question 6

Finish this sentence: “In the free market, every dollar that’s spent…”

Answer 6

“…signals to producers what should be produced and how. it should be produced.”

Question 7

Only 4 things can happen in a market. What are they?

Answer 7

1. Supply can increase
2. Supply can decrease
3. Demand can increase
4. Demand can decrease.

Question 8

What happens to supply if demand goes up?

Answer 8

Supply goes up! (More strawberries!)

Question 9

What happens to supply if demand does down?

Answer 9

Supply goes down (less strawberries…)

Question 10

If SUPPLY goes up, what happens to demand?

Answer 10

Demand goes DOWN (people are less desperate).

Question 11

If SUPPLY goes down, what happens to demand?

Answer 11

Demand goes up (people are more desperate).

Question 12

If the price for strawberries is too high, what happens?

Answer 12

1. Producers want to produce lots of strawberries (more money!)
2. Buyers want less strawberries than producers are producing (too expensive!)
3. This is called a SURPLUS.

Question 13

If the price for strawberries is too low, what happens?

Answer 13

1. Buyers want lots of strawberries (great price!)
2. Producers don’t want to produce as many (too cheap!)
3. This is called a SHORTAGE.

Question 14

What is an EQUILIBRIUM PRICE?

Answer 14

The “just right” price, where producers want to produce the same amount that buyers want to buy.

Question 15

Let’s say winter comes. Will the weather affect the producer’s supply of strawberries, or the buyer’s demand for them?

BONUS: what will happen to the prices?

Answer 15

It will affect the supply! It’s much harder to grow strawberries in winter.

BONUS: the prices go UP!

Question 16

How are the laws of supply and demand different from natural laws, like gravity?

Answer 16

Our actions can change them….but good luck trying to change the laws of gravity!

Question 17

Supply and demand works great for things like strawberries. But it would be a terrible idea to leave organ transplants in the hands of supply and demand. Why?

Answer 17

Because it would create a market for people’s body parts, and people would end up getting used for money.