SUPPLY AND DEMAND ACTIVITY (Grade 7-9)
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:
Draw the following flow chart. It should form a closed loop.
- 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.
SUPPLY:
- 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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- List three things you can do to affect the supply of waste paper.
1.
2.
3.
- If people collect more waste than a recycling mill can use, what
will the mill do?
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- If there is a shortage of waste paper, what will be the effect on
the recycling mill?
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- What can the mill do to increase the supply of waste paper?
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- 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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- 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:
- List three things that could affect the demand for a particular
brand of soap.
1.
2.
3.
- 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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- 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 Recieves | Dealer's Expense |
Dealer's Profit | Mill Pays |
$12/ton | $25/ton |
$3.70/ton | $40.70/ton |
$20/ton | $25/ton |
| $49.50/ton |
| $25/ton |
$5.00/ton | $65.00/ton |
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SUPPLY AND DEMAND:
- Graph the relationship between supply and demand with "Price per ton" between
0 and 20 on the vertical axis and "Tons of waste paper" from 0 to 100 on the
bottom axis.
- The supply curve shows how many tons collectors will supply at each
price.
- Fill in the above graph with the numbers from your chart.
- 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.
- If the price falls to $14/ton, collectors will supply 50 tons.
Put a dot where the $14 line meets the 50-ton line.
- 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.
- 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.
- Now connect all the dots. The line is called the Supply Curve.
- Questions:
- 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.
- If the demand is further lowered to 10 tons, what will be the
effect on the price? Graph the results on the curve.
- 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.
- What will happen if collectors begin to supply more than the
dealers demand?
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- What will happen if the supply falls below what the dealers
need?
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