Supply And Demand

Grade Level: 
Middle School
Subject: 
Alternative Energy, STEM
OBJECTIVE: To realize that there can be and is a demand for things we throw away.
MATERIALS: flow chart, handout: Supply and Demand, pen or pencil
BACKGROUND: Recycling is an increasingly important part of the business world. Materials like used paper, glass, metal, and plastic are valuable resources. Many of these products are in demand and some are looking for markets. Just like any new business, the recycling business is finding out where it fits into the economic structure. If we want to help recycling succeed, we must buy items made from recycled materials. The following exercise addresses the supply and demand of waste paper.
 
The supply of a material is the amount the owners are willing to sell at any one time, place, and price. The supply of one material affects the production, supply, and price of other materials. For example, if waste paper is in short supply, then the cost of cellulose insulation, which is made of waste paper, will be relatively high.


Demand is the amount of an item that buyers are willing to purchase at any one time, place, and price. The demand for one material may affect the demand and price of other, very different materials.
 
Supply and demand interact, each having an effect on the other and on the cost of materials and goods. When the price of a material such as waste paper is high, more people are willing to sell it. Therefore, the supply of waste paper for sales goes up. When the supply increases past the demand, sellers must compete for buyers. They lower their prices to sell their supply. At the lower price, some sellers no longer want to sell their waste paper. Therefore, the supply of waste paper for sale goes down. When the demand for waste paper is high, the mill raises the price they are willing to pay. When the price goes up, the circle of supply and demand starts again.
 

Flow chart for waste paper
Collectors gather 10 tons of waste paper > > > > > >
 
This supply is bought by a waste paper dealer,
who bales it and ships it to a recycling mill > > > > > >
 
The mill makes 9 tons of recycled paperboard > > > > > >
 
This paperboard is sold to a carton manufacturer > > > > > >
The carton manufacturer makes 30,000 paperboard cartons > > > > > >
 
The cartons are sold to a soap factory > > > > > >
 
The soap factory fills the cartons > > > > > >
 
The soap goes to the supermarket for the public to buy > > > > > >
 
and the cardboard cartons are collected for recycling > > > > > >
 
 
PROCEDURE: Discuss the flow chart and how the ideas of supply and demand affect recycling of paper. Then have the students complete the supply and demand questions.


 

 
SUPPLY
 
1. How does the supply of waste paper affect the ability of soap manufacturers to package their products in cartons made from recycled paperboard?
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2. List three things you can do to affect the supply of waste paper.
 
a ._____________________________________
 
b ._____________________________________
 
c ._____________________________________
 
 
3. If people collect more waste than a recycling mill can use, what will the mill do?
 
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4. If there is a shortage of waste paper, what will be the effect on the recycling mill?
 
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5. What can the mill do to increase the supply of waste paper?
 
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6. If a waste paper dealer pays collectors $12 per ton of paper, and his business expenses are $25 per ton, what must he charge the recycling mill in order to make a 10% profit on his cost?
 
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7. If the price of a raw material goes up, what is the usual effect on the price of the finished product?
 
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DEMAND
 
1. List three things that could affect the demand for a particular brand of soap.
 
a.____________________________________
 
b.____________________________________
 
c.____________________________________
 
 
2. Let's assume that "Brand-x" soap becomes very popular. Every box in the supermarket is sold, and people still want more. The supermarket then orders 75% more boxes of soap instead of their usual order of 30,000. List in chronological sequence the effect this change in demand will have on each of the operations shown in the flow chart above.
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3. In the following table, the first set of figures has been filled in for you. Find the figures that are missing from the second and third set of figures. Round off your answers to the nearest whole number. Note: the dealer's profit is 10% of his total expenses per ton or $5.00 per ton, whichever is less.
 
Create a fourth set of figures yourself, based on the same dealer's expenses and percentage of profit.
 
 
 

 

 Collector Receives

 

Dealer's Expenses

 

 Dealer's Profit

 

 Mill Pays
 1.  $12/ton  $25/ton  $3.70/ton  $40.70/ton
 2.  $20/ton  $25/ton    $49.50/ton
 3.    $25/ton  $5.00/ton  $65/ton
 4.        




SUPPLY AND DEMAND
 
1. You can graph the relationship between supply and demand:
 
 
 
2. The supply curve shows how many tons collectors will supply at each price.

a. Fill in the above graph with the numbers from your chart.
 
b. Suppose waste paper sells for $18/ton, and at that price, collectors will supply 70 tons. Put a dot where the $18 line meets the 70-ton line.
 
c. If the price falls to $14/ton, collectors will supply 50 tons. Put a dot where the $14 line meets the 50-ton line.
 
d. When the waste paper sells for $10/ton, collectors will think it is worth their while to sell only 30 tons. Put a dot where the $10 line meets the 30-ton line.
 
e. When waste paper sells for $8/ton, collectors will want to sell only 10 tons. Put a dot where the $8 line crosses the 10-ton line.
 
f. Now connect all the dots. The line is called the Supply Curve.
 
 
3. Questions:

a. Now suppose the economy is in a recession, and the products made from waste paper are not selling well. If the mill is forced to lower its demand from 70 tons to 40 tons, what will be the effect on the price of waste paper? Graph the results on the Supply Curve.
 
b. If the demand is further lowered to 10 tons, what will be the effect on the price? Graph the results on the curve.
 
c. When the demand for paper increases and the mill needs 60 tons, what price will it pay, based on the supply curve? Graph the results.
 
d. What will happen if collectors begin to supply more than the dealers demand?
 
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e. What will happen if the supply falls below what the dealers need?
 
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