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: . 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 student 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 2 3 4 Weight (Needs (Below (Meets Standard) (Exceeds Standard) Improvement) Standard) -Explanation of Identifies a decisions -In addition to meets, flawed Explanation is explained in - Flawed decision is also gives an analogy economic incorrect or too vague, general accurately explained or similar "real X 10 decision or mis- vague to apply to terms not using economic terms world" comparison that demonstrates the conception situation specific to problem economics Evaluates -Plan for future recent actions -Plan for future uses or thoughts and Recent actions -In addition to is vague in economic terms to explained as terminology, but explain a price-setting everything in meets, "real X 10FIRM 1 Dear Economist, It is with a heavy heart that I write to you today, My rm, GoGo 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 rm 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 rst 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 leovers, 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 F IR_M 2 Dear Economist, My company has suggested 1 write you to get your help. Personally, I don't thinkI need it, but I'm willing to play along. I run an auto-repair shop. Our primary service is oilchanges. 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. Alter 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 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, 1 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 lled 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 capitalistI increased my price to $90 and all 8 spots lled. What's going on now that wasn't before? Confused, Cal Qulator FM 4 Dear Economist, I work for a rm that makes Halloween Costumes. Every year we run into a problem and we're hoping you can help. Around late September, people staIt 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 o' 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 a'ect 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. 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 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] 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 pricesl? Whaddya think? Ride on, Red Neckerson Here is how you will be evaluated: Criteria 2 3 4 Weight Needs (Below (Meets Standard) (Exceeds Standard) Improvement) Standard) -Explanation of Identifies a decisions -In addition to meets, also gives an analogy flawed Explanation is explained in - Flawed decision is or similar "real economic incorrect or too vague, general accurately explained X 10 using economic terms world" comparison decision or mis- vague to apply to terms not that demonstrates the conception situation specific to problem economics Evaluates -Plan for future -Plan for future uses recent actions -In addition to Recent actions is vague in economic terms to or thoughts and everything in meets, explained as terminology, but explain a price-setting offers logical, group provides a "real X 10 economic plan positive or sets forth a strategy for the firm world" example of a for future negative, but no strategy for the AND specifically firm to better set references the business or industry decisions. plan is offered prices previous bad decision. that follows their plan. - Graph or -Graph is mostly explanation correct, but has Graph is entirely Correctly includes a MAJOR minor error labeled correctly, incorporates error i.e. - missing effectively -In addition to meets, ALSO relates graph to X 5 graph into (i.e. - wrong shift, one label, failure demonstrates one other graph presentation. multiple mis-labels, to sequence, uses situation, and is inaccurate analysis, wrong condition economically sound etc to explain move) TOTAL: /100