Social Studies Alive! Our Community and Beyond - Lesson 10 by Teachers' Curriculum Institute (TCI)

10 Choices in a Free Market© Teachers’ Curriculum Institute 219

Why do prices change in our economy?

Lesson 10

Choices in a Free Market

Lesson

Peoplemoney.can choose what to buy with the money they earn. Sellers also choose what price to charge for the goods or services they provide.

supplyprofitincentivedemandVocabulary

How do sellers decide what prices to charge? Why do some things cost more than others? Why do prices for goods and services sometimes change? In this lesson, you will explore these questions.

People buy things with money. They work so that they can earn money to buy what they need and want. You can also earn money to buy things that you need and want. In a free market economy, people can choose how they earn

Sellers can choose the price of these toys. Buyers can purchase these toys with money they earn.

Introduction

Think about the things you have at home. You might have clothes in a dresser. You might even have some toys with which to play. You might have a computer that you can do homework and play games on, or you might have books that you can read. How do you get these things?

Think of a good or service that you or your family has purchased recently.

3. What was the benefit to the seller? Why did the seller provide the good or service to you?

4. Did you feel like the price was too high? Too low? About right? Explain why.

2. How did you or your family earn the money to buy the good or service?

Lesson 10 Choices in a Free Market© Teachers’ Curriculum Institute 221 Activity Online Preview Activity

1. Draw the good or service. Label it.

incentive: The buyer could be looking for the best deal. He is motivated to spend less money.

For each term, draw a line to a place in the illustration. Explain how the term relates to that part of the picture. One has been done for you.

profit:demand:

supply:

4. Sing the “Supply and Demand” song. Learn what happens when supply is high and demand is low.

2. Sing the “Supply and Demand” song. Learn what happens when supply is low and demand is high.

2. With a partner, get ready to play the Fruit Market game. Half of the pairs will be buyers and half will be sellers. Make sure you have the right Activity Cards!

1. Play a second round of the Fruit Market game.

3. Read Section 4 and complete your Activity Notes. Then read Section 5.

Lesson 10 Choices in a Free Market© Teachers’ Curriculum Institute 223 Activity Online

Hands-On Activity

Create your own market to discover what happens when supply is high and demand is low. Then find out what happens to prices when supply is low and demand is high.

3. Play the round. Sellers want to make as much money as possible. Buyers want to buy as much fruit as possible.

1. Read Sections 1–2 and then add to your answers in the Preview Activity and Vocabulary Activity.

5. Read Section 3 and complete your Activity Notes.

Directions: The Fruit Market Game (Round 1)

Directions: The Fruit Market Game (Round 2)

In a free market economy, people choose how to earn their money. The money that people earn is called income. Most people earn money by working. They may earn money by providing a service. For example, teachers earn money by teaching students.

Teachers earn money by providing a service.

1. We Earn Money by Working

Suppose you are at a toy store. You may see a game that you really want to get for you and your friends to play. Like many goods, this game has a price tag that shows how much money you will need to buy it. How can you earn enough money to buy it?

At home, you might clean your room every week, help wash dishes, or even take out the garbage. Your parents might pay you an allowance when you complete all of your chores. They are paying you for a service.

People can also earn money by making something and selling it. Think about the things that are in the toy store. You might see action figures, stuffed animals, and toy cars. All of these things are made by people. People then sell these goods to you so that you can use

Thinkthem.about the game that you want to buy. It might cost you $30. You might ask your parents to buy you the game. But your parents have to make money in order to buy things. How do your parents choose to make theirMaybemoney?your parents own a business. In a business, people might make or sell goods, or they might help people by offering different services. Businesses pay people for the work that they do. In order to make money to pay people, a business needs to sell something. How do businesses choose what to sell?

This woman earns money by making toys to sell.

225© Teachers’ Curriculum Institute Lesson 10 Choices in a Free Market

Different fabric types and colors can be different prices.

In a free market economy, businesses want to earn a profit. Profit is the amount of money a business has left after it has paid for materials and workers. If a business sells its goods for more than it costs to make them, the business earns a profit.

Often, businesses make choices based on incentives. Incentives are things that lead businesses to make certain choices. More profit is one incentive. For example, a business might find a cheaper material with which to make a good. Choosing cheaper materials will increase profits. This is an incentive to make more of this type of good.

Think about the game you want to buy. The business that makes the game earns money when people buy it. But the business also has to spend money to produce the game. The business buys different parts for the game and pays people to put it together.

2. Businesses and the Economy

227© Teachers’ Curriculum Institute Lesson 10 Choices in a Free Market

Changes in laws can lead to higher gas prices.

If you want to start your own business to earn money, you must also think about profit. Suppose you want to sell something that will help you earn money for your game. You may choose to open a lemonade stand because lemonade is easy to make. Also, lemonade does not cost very much to make, so you can make a profit.

Rules or laws can force a business to spend more money to make its goods. The business might choose to raise prices for the goods it sells. Or, it might choose to make something else instead.

To make the most profit, you should choose the lemons that cost less money.

When you go to the grocery store to get your supplies, you may pick the lemons that cost the least money. Keeping costs low would help you make a profit for each glass of lemonade that you sell. Once you have made your lemonade, for how much do you choose to sell each glass?

3. Prices Change When Supply Is High and Demand Is Low

In a free market economy, you can choose the price for which you will sell your lemonade. You could first choose to sell your lemonade for 50¢. If it costs only 5¢ to make each glass, you would make a profit of 45¢ per glass. However, would customers pay 50¢ for a cup of your lemonade?

In a free market, the price for which you choose to sell a good or service is set by both the seller (you) and the buyer (the customer). This is also called supply and demand. Supply is the total amount of a good or service that is available to buy at any price. At your lemonade stand, the supply of lemonade is the amount of lemonade that you make to sell. Demand is the total amount of a good or service the customer in the market will buy at allTogether,prices. supply and demand set prices. Think about your new lemonade stand business. You might make five pitchers full of lemonade, so the supply of lemonade is high.

When few people want a good, demand is low.

You have a problem now. You have made more lemonade than customers want to buy. What do you think you can do?

As you sit at your stand, you notice that not many people are buying lemonade from you. In fact, many people might already have lemonade to drink. They might be buying lemonade from a stand nearby, so they do not want to have more lemonade. This makes the demand for lemonade low.

One thing that you can do is lower the price of the lemonade. If you make the price of your lemonade low enough, customers might decide to buy some lemonade from you instead of the other stands. You can even make your prices lower than the other lemonade stands to compete with them. Lowering your prices could help you earn money. When supply is high and demand is low, prices go down.

If demand for your lemonade is low, you will need to lower the price of each glass.

229© Teachers’ Curriculum Institute Lesson 10 Choices in a Free Market

3. Write a new price on the sign to show what happens when supply is high and demand is low.

Follow these steps to show what happens when supply is high and demand is low.

Round 1: The Fruit Market Game

1. Label the buyer and seller in the picture.

2. In the thought bubbles, write what each person is thinking when supply is high and demand is low.

Sometimes, many people want to buy the same thing, but there might not be enough of this good for everyone to buy one. Can you guess what happens to prices when supply is low and demand is high?

Suppose that you have been out at your lemonade stand for a few hours. The day has gotten very hot, and many people have been buying your lemonade. You might have already sold four full pitchers of lemonade, and now you have only one left.

When many people want a good, demand is high.

231© Teachers’ Curriculum Institute Lesson 10 Choices in a Free Market

With only one pitcher of lemonade left, your supply of your lemonade is low. But in the hot weather, many customers still want to get lemonade. You might even have a long line of people waiting to buy lemonade from you. The demand for lemonade is high.

4. Prices Change When Supply Is Low and Demand Is High

Now the customers have a problem. At the price you are charging, kids want more lemonade than you have. The demand for lemonade is greater than the supply that you can sell. That means that not all the customers who are waiting in line will get the lemonade that they want. What do the customers do when supply is low?

If demand for lemonade is high, you can raise the price of each glass.

Seeing that your supply is low, some customers may be willing to pay more for your lemonade than other customers are. Because some customers are willing to pay more, you might choose to raise the price for your lemonade.

In other words, sellers know that some buyers will pay more for something than other buyers. Because the demand for your lemonade is so high, people will be willing to pay more for it. When demand is high and supply is low, prices go up.

Round 2: The Fruit Market Game

1. Label the buyer and seller in the picture.

2. In the thought bubbles, write what each person is thinking when supply is low and demand is high.

3. Write a new price on the sign to show what happens when supply is low and demand is high.

Hands-On

Activity Notes

Follow these steps to show what happens when supply is low and demand is high.

Suppose that one year California has freezing weather. The cold spoils half of the year’s crop of lemons. The supply of lemons is very low. There are not enough lemons for everyone who wants them. The farmers know that customers will pay more to get the lemons they want. So, the farmers decide to raise their Supposeprices.thatthe

At your lemonade stand, you learned how supply and demand affect the price for which you sell your lemonade. In a free market economy, supply and demand affect how the prices for all goods and services change.

next year farmers in California have grown a huge crop of lemons. There are more lemons than anyone has seen in years. The supply of lemons is very high. The farmers want to sell all their lemons. They know that customers will buy more lemons if the price is lower, so they lower their prices.

5. Changes in Supply and Demand

Bad weather can change the price of different fruits.

If the supply of lemons is high, prices will be low.

In a free market economy, prices go up and down because of supply and demand. Knowing for what price people can sell their goods and services helps them earn money.

Think about the prices of other things that are affected by supply and demand. The week before Halloween, many people want to buy pumpkins. The demand for pumpkins is higher at this time of year than during any other month. Because demand goes up, prices go up. When Halloween is over, demand goes back down. Then farmers lower their prices so they can sell their pumpkins.

Pumpkins often cost less after Halloween.

Buyers and sellers, through supply and demand, affect prices in a free market economy. High supply and low demand lead to lower prices. Low supply and high demand lead to higher prices. When either supply or demand changes, prices change, too.

1. In the box, draw or paste a picture of a good or service. Write the price.

Explore prices where you live.

2. Explain why it has a high or low price. In your answer, use the words supply and demand.

Price:

Show What You Know

In a free market economy, people can choose how they want to earn money. They can choose to provide a service, or they can choose to make a good. People can also choose to work for a business. Businesses make many choices about how they want to earn money. Incentives and changes in laws can affect the choices that businesses make.

Summary