Supply & Demand Classroom Activity

Target Curriculum: History and Social Science

Target Grade: 3

SOLs: HSS.1.12   HSS.2.6   HSS.3.8  
Time: One 40 - minute period

Objective:
The student will be able to explain that desirable goods that are scarce often have a high price, but if the supply of those goods increases, price often goes down.

Purpose:
Students will role-play consumers attempting to purchase a desirable good that is in high demand.

Materials:
One inexpensive, yet desirable, item for each child in the class, plus 2 or 3 extras. I used pencils with a currency design, and each pencil had a "No Homework" coupon attached, good for one homework assignment of the student's choice.

Procedure:
1. Begin the activity by giving out ziploc bags containing 15 - 20 tokens of various colors.
2. Choose a color at random and tell the children to remove the tokens of that color from their bags. These are the tokens that have value. The other tokens will not be used. Assign a value to the tokens the students will be using; for example, the blue tokens will be worth $1 each.
3. Show the class ONE of the items you have to "sell." Do your best "This fabulous item can be yours" sales pitch, emphasizing the scarcity of the desirable item. Then ask if anyone would like to "buy" the item.
4. When students show interest, call on a student (preferably one with a small amount of money to spend) and ask how much he or she would be willing to pay for this item. Give his/her offer some serious thought, and then ask if there is anyone who would be willing to pay more.
5. Continue in this matter until you have received your best offer, then sell the item to that student.
6. Express your regret that you couldn't sell the item to the other students who offered to buy it, and lead a discussion of why the students think you chose to sell it to the highest bidder. (To get the most money possible for the item!) This is a good time to introduce the terms supply (how much there is of something) and demand (how much of something people want), if you haven't used those words before.
7. Have the students complete this sentence: When demand is greater than supply, prices go ______ (up).
8. Wow! Discover that you have a whole bag of these fabulous items, and you can sell more after all! You may not want to reveal exactly how many of the item you have. Allow students to bid on the items and purchase them. When you discover that you actually have MORE of the item than you have students in class, you might want to put them on sale for $1 apiece. (If there's a "No Homework" coupon involved, you may limit them to one per customer!)
9. Have the students complete this sentence: When supply is greater than demand, prices go ______ (down).
10. Discuss real-life examples of prices being affected by supply and demand. I like to do this in December or January, because almost every Christmas there is some desirable toy that commands a high price, and students can usually think of examples of items that were high-demand in previous years, which are now plentiful and cheaper. (Video game systems and electronic toys are the best examples.)
11. Ask the first student who bought the item (for the highest price) how he feels about the activity, and whether he would have paid that price if he had known there was a large supply of the item.
12. Help students make the real-world connection. If that money was real, and it was all they had until their next payday, would they have bought the item, or would they have chosen to spend that money on other things? This can lead to an introduction of opportunity cost (what you give up to get the thing you want the most).

Observations:
This lesson is guaranteed to capture and hold the attention of EVERY student in your class!

If you auction off an item that the student can use for a few days (like a pencil, rather than a piece of candy), the item is a visual reminder of the lesson.

With older students, you might include opportunity cost in the lesson by having more than one item available to sell.

Conclusions:
Consumers get a better price when there is a good supply of the item they want to purchase than when the item is scarce and demand for it is high.

Extension:
Have students bring items from home to "sell" in the classroom. They may find they need to adjust their prices in order to make a sale, and that certain items fetch higher prices because they are unique and/or scarce.

Class Discussion Questions:
Why do prices sometimes go down after a new item has been in stores for a few months?

Would it be smart to wait a while before purchasing the hot new video game system or electronic toy?

Why do stores put their goods on sale?

Why are large chain stores able to sell goods for lower prices than small businesses?