Supply/Demand Performance Task

You have been hired as an economic consultant to a firm that is trying figure out how
to set their prices. Unfortunately, they are very confused on supply and demand issues.
Their story is on the back of this page. Your task:

FIRM 1
Dear Economist,

It is with a heavy heart that I write to you today. My firm, Go-Go Gadgets, is all over
the place in the market right now. We sell gadgets and we think we have the best gadgets in
the world – certainly better than that run down firm owned by the Inspector. However,
currently, we have two warehouses FULL of gadgets in addition to all the stores that carry
them being fully stocked. We’re not sure how to deal with that exactly. To give you a little bit
of background, we first got into the market for gadgets a while back because we heard a lot
people saying “I don’t really need a gadget, but it’d be nice to have.” We thought that meant
people wanted them so we produced a whole bunch. We originally asked for $25 a gadget,
which didn’t seem like much to us, but we only sold about 100 or so and had thousands left
over. Someone in our marketing department had the idea that we should get a celebrity to
endorse our gadgets, so we did. All of a sudden, we were selling exactly what were making
with no left-overs, but we didn’t change the price. Why do think that happened? We
anticipated even more sales so we doubled our production. Before long, we were
overstocked again and were losing a lot of money. Someone suggested we cut the price, but
after investing all that money in double production, I wasn’t about to do that, so we recently
raised the price to $30 a gadget, which has gotten us to where we are now. What are we
doing wrong?

Sincerely,
Stan, the Gadget Man
1.The product is a wants
After the advertisement of the celebrity the speculation of customer affect the demand that it
leads to change in demand . Speculation of customer is a non-price factor that changes the
demand.
The main problem is that people don’t need a gadgets . So why sale a product that people
don’t need .
It means that if people don’t need a gadget a little increase in price will results to a higher
decrease of demand.
People change their taste and preferences especially to the product that is a wants and has
a substitute.

Example of gadgets:
 Supply/Demand Performance Task

You have been hired as an economic consultant to a firm that is trying figure out how
to set their prices. Unfortunately, they are very confused on supply and demand issues.
Their story is on the back of this page. Your task:

FIRM 2

Dear Economist,

My company has suggested I write you to get your help. Personally, I don’t think I
need it, but I’m willing to play along. I run an auto-repair shop. Our primary service is oil-
changes. We’re the quickest and best at what we do. “Get ‘em lubed, and get ‘em out.”
That’s our motto! Lately, however, my workers have been complaining that they’re bored,
not enough work to do. I don’t understand that. We’re still charging the same price we
always did and we used to have cars lined up down the street. In fact, when we first started,
we were so cheap we had to turn customers away! I’m not sure why that was, but I’m told
you can tell me. We were already working as fast as we could when 3 brand new
neighborhoods were built and a new highway was put right through our town. Then it
seemed like we had twice as many customers, but I REFUSED to raise prices! I had them
set where I wanted and I wasn’t going to change. After a while, however, some
knuckleheads down the road decided THEY wanted to open up an auto shop as well and
they matched our prices. It wasn’t long before another and another and another auto shop
opened. Then, they started to compete and lower prices! I liked where I had my prices and
refused to change. Slowly, more and more people went to these other places and I don’t
understand why! We’re the best!
Annoyed,
Mac Kannic
2. The service is a need to the many people who have cars for change in oil. Service has
only 1 supply and more demand. It means their is a shortage of supply.
After having competitors the supply increases and the profit or income divided through all the
supplier.
The higher the supply without the increase of cars will result to lower demand.
The main problem there is the inability of mac kannic to change strategy to the retention of
his customers to him. Because even if there are thousand of newly auto repair shop if the
customer is satisfied by the services as well as the prices no customer will went to these
other places. Because he refused to change prices it means his customer will go to these
other places. Because price is the most fundamental factor that affect the demand. That’s
according to economist.
 Supply/Demand Performance Task

You have been hired as an economic consultant to a firm that is trying figure out how
to set their prices. Unfortunately, they are very confused on supply and demand issues.
Their story is on the back of this page. Your task:

FIRM 3

Dear Economist,

My name is Cal Qulator. I run a mathematics tutoring business, but I failed my

economics classes. I’m not complaining, but I am confused about something that’s going on
with my business right now. Let me start from the beginning. When I first opened my
business, the going rate for tutoring was $20. For that I was willing to tutor 2 students a
week. I advertised that for $40 I’d take 4 students and for $60 I’d take 6 students a week.
Surprisingly, even at $60, I had 6 students. However, when I switched to $80 – thinking I
could get 8 students, 2 of my students quit because they couldn’t afford it and I had extra
spaces. Why did that happen? Anyway, I decided to go back to $60 and picked up those 2
students again. Recently, I inherited a large sum of money and didn’t need to work anymore.
I still wanted to tutor so I said I’ll offer 8 spots a week and NO MORE. Strangely, even
though I was still charging $60, I filled up my remaining two spots AND had people calling
wanting more spots. Apparently, this has something to do with this new math curriculum I
guess. I only have room in my schedule for 8 students and that’s it, so, like a good capitalist
I increased my price to $90 and all 8 spots filled. What’s going on now that wasn’t before?

Confused,
Cal Qulator
3. The services is a need but students could not afford the services fee, tutorial is a
substitution of going to school whole day.
4. Students have no choice but to pay 80 dollars because of the new math curriculum.
the main problem is that calqulator don’t really understand the essence of how costumer or
consumer behave in the market.
 Supply/Demand Performance Task

You have been hired as an economic consultant to a firm that is trying figure out how
to set their prices. Unfortunately, they are very confused on supply and demand issues.
Their story is on the back of this page. Your task:

FIRM 4

Dear Economist,

I work for a firm that makes Halloween Costumes. Every year we run into a problem
and we’re hoping you can help. Around late September, people start buying a whole bunch
of our products. Seeing this, we start producing like crazy and charging more money.
Through October this works well and we make money and sell most of what we make. Then,
all of a sudden, our sales drop off like a blind man walking off a cliff. Why does that happen?
Secondly, we think we should be able to get the same price for our costumes year round as
we do during Halloween season. However, during off seasons, only a few people seem to
be willing to buy at the normal prices. What’s up with that? This year, we have heard that
the government is moving to increase taxes on costume makers. How will that affect us?
Currently, we only have a few costumes ready to go and we are trying to avoid the normal
problems. What should we do?

Spookily yours,
Hal O’Ween.
The product is a wants, the product is seasonal. The product could still be use next year
The product price must consider its necessities.
The main problem is that the product is seasonal, meaning the company should not produce
a hallowen costume that would exceed the demand. No one will buy that during Christmas
season or off season.
How will the increase in tax affect the costume maker . The higher the income the higher the
tax.
 Supply/Demand Performance Task

You have been hired as an economic consultant to a firm that is trying figure out how
to set their prices. Unfortunately, they are very confused on supply and demand issues.
Their story is on the back of this page. Your task:

FIRM 5

Dear Economist,

I probably should have written sooner, but I’ve been too busy eating some of my
delicious new ice cream OrangeMintChocolateJellyBean. It’s going to be HUGE! Anyway,
I’m writing you because I think my Ice Cream Shop is in in trouble. Normally, I sell around
100 gallons of ice cream a month at about $5 a gallon. There was one summer when, for the
same price, I sold 200 gallons for a while – not sure why that happened though. What do
you think? What concerns me now is that the price of freezers – obviously where people put
their ice cream - has tripled in my neighborhood. People are combining freezers with their
neighbors and freezer space is at a premium. My thought was to double the price of my ice
cream so that when people bought it, they’d want to take more care of it. To make matters
worse, my top ice cream maker left to join Ben and Jerry’s and I have a bunch of novices
who don’t produce as much! What is likely to happen with both of these things going on at
the same time? Is there any hope?

Creamily yours,
Neo Politan
The product ice cream is commonly used for dessert, during summer the demand of ice
cream will increase because summer is the hottest of the four temperate seasons, here in the
Philippines we experience the hottest month in may also known as summer, during these
days ice cream demand is at its premium. Days are longer and nights are shorter.
So it means people will buy more ice cream to be refresh. But then because summer wont
last forever it means the demand also for ice cream will decrease during wet season. Here in
the Philippines we only have 2 seasons the wet season and the dry season.
The main problem is that ice cream is a seasonal product. Although some people eat ice
cream during wet season but commonly the demand will decrease because of the rain and
cold air that many people will surely get sick, sip on ubo.
The other problem is that his top ice cream maker resigned to join ben and jerry and bunch
of novices who don’t produce as much left.
It will affect the supply of ice cream, the taste of the ice cream. And it might lead to a fall of
demand. The law of marginal diminishing utility is used to showcase how people satisfaction
diminish when more and more amount of ice cream is consume.
The freezer will used to stock ice cream leftovers.
 Supply/Demand Performance Task

You have been hired as an economic consultant to a firm that is trying figure out how
to set their prices. Unfortunately, they are very confused on supply and demand issues.
Their story is on the back of this page. Your task:

FIRM 6

Dear Economist,

Howdy Partner! My name is Red and I am THE premier rodeo promoter around these
here parts. Boy howdy, do I have a question for you. Here’s my sitcheeation. For years I
have promoted a local rodeo that has sold out every Saturday night. I charge $15 a ticket
and every seat is sold. Sometimes, I even have people waiting outside when all the seats
are sold. This also gives rise to scalpers, which I HATE. They get more than $15 a ticket!!!
Why does that happen? Recently I decided to expand and I made my arena bigger by
adding 6 new rows of seats so now I can get 8,000 people in the arena. But, I’m not selling
out anymore! I don’t understand this at all. It’s still the same good show, maybe even better!
Why is this happening? The good news is, though, the scalpers don’t come around as much.
I hired some nerdy college kid who ran some kind of economic analysis and he says what I
need to do is lower my price, which I’m not to thrilled about. Would that even work? Of
course, my instinct is to do some more advertising and possibly even bring in more popular
rodeo stars. I’m wondering if then I could even raise my prices!? Whaddya think?

Ride on,
Red Neckerson
Premier Rodeo Promoter is known for being famous in other countries also here in
Philippines. Its the same old show even been better is still the same nothing more just less.
The main problem is not really about the show but about the the promoter RED, lacking of
promoting skills.