Supply & Demand – Krispy Kremes!
Below is a SUPPLY SCHEDULE showing the quantity of chocolate glazed doughnuts a business is willing to SELL at various prices during a given time period.
SUPPLY SCHEDULE 1
Price per Doughnut Quantity Supplied
$.60 300
.50 250
.40 200
.30 150
.20 100
Now, let’s say that the cost of flour, sugar, and chocolate used in making doughnuts FALLS. Krispy Kreme will be willing to produce more doughnuts, so there will be an INCREASE in SUPPLY, and there will be a whole new supply schedule.
INCREASED SUPPLY SCHEDULE II
Price per Doughnut Quantity Supplied
$.60 400
.50 350
.40 300
.20 250
.30 200
SUPPLY
Supply increases >
Supply decreases <
Study the Supply schedules above, and answer the following questions:
1. As prices decrease, the quantity supplied < and as prices increase the quantity supplied >
2. This is called a DIRECT RELATIONSHIP. Why? Increase in price creates a decrease in supply and vise versa
3. If the sugar cane crop was destroyed and cost of sugar increased sharply, the cost of producing
doughnuts would increase, the supply might <
Read each situation below. Decide if supply would increase/decrease.
4. Government pays subsidies to farmers NOT to grow tobacco. <
5. Someone invents a better way to grow and harvest wheat. <
6. Mad cow disease kills 25% of cows in England. <
7. Business costs increase due to raised taxes. <
8. The price of microprocessors used to produce laptops drops. >
9. A spring frost killed one third of the strawberry crop. <
Below is a DEMAND SCHEDULE showing the quantity of chocolate glazed doughnuts people are willing to BUY at various prices during a given time period.
DEMAND SCHEDULE I
Price per Doughnut QuantityDemanded
$.60 100
.50 150
.40 200
.30 250
.20 300
Okay, what if people’s incomes have increased, and they have MORE MONEY to spend. There will be an INCREASE in DEMAND, and there will be a whole new demand schedule.
INCREASED DEMAND SCHEDULE II
Price per Doughnut Quantity Demanded
$.60 200
.50 250
.40 300
.30 350
.20 400
Demand increases >
Demand decreases <
Study the Demand Schedules above and answer the following questions:
11. As prices < the quantity demanded > and as prices >, the quantity demanded <
12. This is called an INVERSE RELATIONSHIP. Why? Because as price increases demand decreases and vise versa
13. If arsenic poison was found in a popular brand of hot dogs, the demand for hot dog buns might decrease
Read each situation below. Decide if demand would increase/decrease.
14. A recent tax cut raises workers’ disposable incomes.
DEMAND increase
15. Bell-bottom hip huggers are now the hottest style in jeans. DEMAND increase
16. A new artificial sweetener has been linked to cancer.
DEMAND decreased
17. Aspirin has been proven in studies to lower risk of heart attack. DEMAND increase
18. Oranges are very expensive due to a fungal disease.
DEMAND decrease
19. Homes in an area recently named “Top Town in America.” DEMAND increase
20. Use Supply Schedule 1 and Demand Schedule 1
Then, highlight the equilibrium price, and label it.
At what price will the quantity of doughnuts that people are willing to buy (quantity demanded) be equal to the quantity of doughnuts that people are willing to sell (quantity supplied)? The price is $_ and the quantity is _doughnuts.
21. Use Supply Schedule 2 (increase in supply!) & Demand Schedule 1 Then, highlight the equilibrium price and label it.
After the increase in supply, at what price will the Quantity Demanded now be equal to the Quantity Supplied? The price is $._ and the quantity is _ doughnuts.
22. Compared to your answers in question #21, the
price has now _ and the quantity demanded has _.
23. Use Supply Schedule 1 (more income, higher demand)
& Demand Schedule 2 Then, highlight the equilibrium price and label it. After the increase in demand, at what price will the Quantity Demanded now be equal to the Quantity Supplied?
The price is $ ._ and the quantity is _ doughnuts.
24. Compared to your answers in question #21, the price of Doughnuts has now _ and the quantity supplied has _.
Use your brain and try these: (Hint: always insert “price”)
25. A decrease in supply would cause quantity demanded to _.
26. A decrease in demand would cause quantity supplied to _.
