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Supply/Demand
Performance Task #3
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:

• Identify the firm’s major trouble areas and misconceptions

• Analyze the decisions made by the company and explain, using
economic terms, the problems or the flawed logic each situation
• Evaluate the flawed decision/action/confusion and offer a strategic
plan to improve future decisions.
• EACH PERSON should use AT LEAST one graph and demonstrate
AT LEAST one manipulation (increase/decrease, change price, etc)
during the presentation

Here is how you will be evaluated:

Criteria 1 2 3 4 Weight
(Needs (Below (Meets Standard) (Exceeds
Improvement) Standard) Standard)
-In addition to
-Explanation
Identifies a meets, also gives
of decisions
flawed - Flawed decision an analogy or
Explanation is explained in
economic is accurately similar “real
incorrect or too vague, general X3
decision or explained using world”
vague to apply to terms not
mis- economic terms comparison that
situation specific to
conception demonstrates the
economics problem

-Plan for future

Evaluates
uses economic -In addition to
recent actions -Plan for future
terms to explain a everything in
or thoughts - Recent actions is vague in
price-setting meets, group
and offers explained as terminology,
strategy for the provides a “real X3
logical, positive or but sets forth a
firm AND world” example
economic plan negative, but no strategy for the
specifically of a business or
for future plan is offered firm to better
references the industry that
decisions. set prices
previous bad follows their plan.
decision.
-Graph is
- Graph or mostly correct,
- Graph is
explanation but has minor
entirely labeled
includes a error
Correctly correctly, -In addition to
MAJOR error (i.e. – missing
incorporates effectively meets, ALSO
(i.e. – wrong one label, X2
graph into demonstrates relates graph to
shift, failure to
presentation. situation, and is one other graph
multiple mis- sequence, uses
economically
labels, wrong
sound
inaccurate condition to
analysis, etc) explain move)

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EACH group - One or two - All 4 group
member members members present
explains at dominate the a significant
entire portion of content X1
LEAST one
problem presentation and use at least
during one graph in their
presentation portion

TOTAL:______/35

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

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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

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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

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 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!

Annoye
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 d, Mac
Kannic

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 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?

Confuse
d, Cal
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 Qulator

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 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.

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 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

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 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

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