How to teach supply and demand

Why this matters

A student can draw supply and demand curves and still believe that raising a price always brings in more money. She is half right: each sale earns more. She misses the buyers who walk away, so she misreads every elasticity question, and the teacher has to wait for quiz day to find out.

Supply and demand

Demand is how many buyers want a product at each price, and it falls as the price rises. Supply is how many sellers make at each price, and it rises with the price. The equilibrium price is where the two meet: everything made gets sold, and nobody who wants one at that price goes without. A minimum price set above equilibrium is a price floor, and it leaves a surplus. When demand is elastic, a price rise loses enough buyers that total revenue falls, and when demand is inelastic, total revenue rises (OpenStax).

In the Flint activity, each student picks something to sell at a home basketball game, and Sparky builds a spreadsheet and a supply and demand graph for that product. Students find the equilibrium price, work out the surplus a $6 minimum price leaves, and test what a 20% price rise does to revenue. On a worksheet, a wrong price gets a red mark. In this activity, a student who picks the wrong price is sent to the row in their own spreadsheet that disproves it, and a right answer gets a harder price to test.

Camila prices bubble tea for a home game

Camila is a high schooler who wants to sell bubble tea at her school's home basketball games. She knows a lower price sells more cups. She thinks a higher price always means more money.

Every student gets the same greeting, the same market numbers and the same questions: the price where the stand sells out, what a $6 minimum price does, and what a 20% price rise does to revenue. The rest of the chat is Camila's own. Sparky names the spreadsheet and graph after what she said she'd sell, and each next message depends on what she just answered. Camila is an example student, and her chat is shortened.

Sparky builds the market around the student's productSparky sends the student back to a row or a line instead of giving the answerA right answer gets a harder question

C

Camila

Interest: Selling bubble tea at home gamesStarting point: Knows a lower price sells moreGets stuck: Thinks a higher price always earns more

Sparky

Hi! Today you're the CEO of a stand at your school's home basketball game. You'll set a price, see how many people buy, and find out what happens when the student council steps in. First, what would you sell at the game?

Camila

bubble tea!! everyone at my school is obsessed with it

Sparky

Your Bubble Tea Stand – Home Game spreadsheet is ready. Number Wanted is how many customers want one at each price, and Number Made is how many your stand produces. Leftover (+) or Short (-) shows whether you have extras or run out, and Revenue is what you earn. At which price does the stand sell everything it makes, with nobody who wanted one left without it?

Camila

$2, because thats when the most people want one

Sparky

Check the Leftover (+) or Short (-) column on the $2 row. What does that number tell you about what's happening at the stand?

Camila

oh its -150, so 150 people want one and dont get it. so $5? thats the row where its 0

Sparky

Exactly. When that column hits 0, the number wanted equals the number made. That's called the equilibrium price: 110 bubble teas at $5. Now the student council has set a minimum price of $6 for anything sold at games. How many bubble teas will your stand have left over at the end of the game? And where does that show up on the graph?

Camila

50. at $6 i make 130 but only 80 people want one

Sparky

That's right, 50 left over. And where on the graph can you see those 50?

Camila

its the space between the demand line and the supply line on the dashed line

Sparky

Exactly. A minimum price set above equilibrium is called a price floor, and the leftovers are a surplus. The council drops the rule. If you raise the price from $5 to $6, a 20% increase, what happens to your revenue?

Camila

it goes up. higher price means more money per cup

Sparky

Take a look at the Revenue column on the $5 and $6 rows in your spreadsheet. What do those two numbers tell you?

Camila

wait it goes down, 550 to 480. i guess they just get a soda or a slushie from the snack bar instead

Understanding check

Yes. 30 fewer people buy, and that pulls revenue down even though each cup earns more. Your stand also sells the only phone chargers at the game. At $10 you sell 20, and at $12, also a 20% rise, you sell 18. What happens to charger revenue, and why is it different from bubble tea?

Camila

it goes up, 200 to 216. if your phone is dying theres nowhere else to get a charger so people pay anyway

Sparky

$200 to $216, and your reason is right. Bubble tea demand is elastic: buyers switch to other options when the price rises, so revenue falls. Charger demand is inelastic: buyers keep paying because there's nothing else at the game, so revenue rises. In one or two sentences, how should a CEO decide whether to raise a price?

Found equilibrium and the surplus herself, then fixed her idea that a higher price always earns more

Camila's first answer picked the price with the most buyers. Sparky didn't tell her she was wrong. It sent her to the $2 row of her own spreadsheet, where -150 showed her 150 people leaving without a drink, and she found $5 herself. When she said a higher price always earns more, Sparky pointed her to two numbers in her Revenue column, and she worked out why on her own: the people who stop buying get a soda instead. Sparky used the words equilibrium, price floor, surplus, elastic and inelastic only after she had described each idea in her own words.

What Flint did for Camila

• Sparky made a spreadsheet for her bubble tea stand whose formulas recalculate, so every number she used came from a row she could check.
• Sparky drew a supply and demand graph from her rows and added the $6 minimum price when the council's rule came in.
• When Camila picked $2 and later said revenue goes up, Sparky sent her to a row and a column instead of giving the answer.
• After each right answer, Sparky moved her to a harder question: the $6 floor, then the price rise, then the phone chargers.
• Sparky worked out the charger revenue, $200 and $216, before it told Camila her numbers were right.

A teacher can't build 30 spreadsheets and graphs and watch each student read their own Revenue column. Sparky does it in every student's chat.

The activity page shows who thinks a higher price always earns more

Sparky's analysis guidelines in this activity ask it to note which students first said a higher price always brings in more revenue, and whether they changed their answer after reading the Revenue column. When a student stays stuck, Sparky adds an alert under Needs attention while the class is still working. When students submit, Sparky grades each chat against the activity's rubric: equilibrium, the price floor, and elasticity and revenue.

Set up the activity for free

The game-day stand activity is in Flint's public library, with Sparky's guidelines, the market numbers, the greeting and a rubric already set up. Open it, select Use activity to copy it into a free Flint account, and move it to a class. In the activity's Preview tab, select Try session myself to price a stand as a student before you assign it.

For more social studies activities, see Flint for social studies.