A Lesson on the Supply and Demand of Toy Fads
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In 1958, Wham-O, Inc. began marketing the Hula Hoop in the United States. Sales of the Hula Hoops sky-rocketed during the year, in the first months over 25 million were sold, within the year over 100 million. Similarly today, Silly Bandz has taken off in sales since the summer of 2008. According to Robert J. Croak, founder of Brainchild Product the producer of Silly Bandz, from a small warehouse in Toledo, Ohio has gone from shipping 20 to 1,500 boxes a day.
In 1994, the film The Hudsucker Proxy portrays a fictionalized account of the demand for Hula Hoops as they were introduced into the market.
Watch this clip from The Hudsucker Proxy and discuss how the supply and demand for Hula Hoops interacted with prices.
*Note this clip requires the ability to view YouTube, use of it may require prior download or permission.
Today, Brainchild Products, the producers of Silly Bandz are experiencing a large increase in demand for their products similar to that of Hula Hoops in 1958. The rise in demand for Silly Bandz; however, has not been accompanied by an increase in the price for the product.
In order to gain some background information about the demand for Silly Bandz, take a look at the following news stories from ABC and USA Today.
In this lesson, you will use the case studies of Hula Hoops and Silly Bandz to learn about the concepts of supply, demand, price, equilibrium, surplus, and shortage. You will be defining many concepts of supply and demand, surplus, shortage, and equilibrium. You will also draw, label, and analyze many parts of graphs to (1) help you better understand the concepts, and (2) in order to demonstrate your knowledge. You will also analyze a case study and use a graph that identifies the given price of Silly Bandz, and explains why the price is an example of either a shortage, surplus, or equilibrium price.
1. Review the concepts of the "Law of Supply" and the "Law of Demand." The Law of Supply states that as the price of a good or service that producers are willing and able to offer for sale during a certain time period rises (or falls), the quantity of that good or service supplied rises (or falls). The Law of Demand states as the price of a good or service that consumers are willing and able to buy during a certain time period rises (or falls), the quantity of that good or service demanded falls (or rises).
2. Review the concepts of equilibrium price, surplus, and shortage. Equilibrium is the price at which the quantity demanded by buyers equals the quantity supplied by sellers; also called the market-clearing price. A surplus is the situation that results when the quantity supplied of a product exceeds the quantity demanded. This generally happens because the price of the product is above the market equilibrium price. The situation that results when the quantity demanded for a product exceeds the quantity supplied. This generally happens because the price of the product is below the market equilibrium price.
3. Use the Supply and Demand Part 1 and Supply and Demand Part II on supply and demand to review the two concepts. (When students open the interactive tutorials hit the fullscreen button in order to see them more clearly, it is located at the top right-hand side next to the go to lesson link. It might not be fully in view. To navigate the slides a white arrow will appear in the corner. Have students click on the arrow, as it appears to move on to the next slide.) The tutorial gives graphic examples that show you the interaction between quantities supplied and demanded at different prices. It then walks you through the concepts of equilibrium, surplus, and shortage, give graphic examples for each. Finally, you can use the tutorial to see how increases or decreases in supply/demand are graphed, and their impact on prices and quantities supplied or demanded.
4. From the information presented in the video clip from the Hudsucker Proxy and the Hula Hoop Case Study can be used to examine the changes in demand shown in the video. You are walked through three different supply and demand schedules and shown graphically how the demand curve for Hula Hoops changed from the introduction of the Hula Hoops into the marketplace to the height of their popularity in 1958.
5. Using your knowledge of the laws of supply and demand and the Hula Hoops Case Study, go through the news article and video clip on the market for Silly Bandz. Then use the Silly Bandz Case Study to examine whether the current price of $5, for a package of Silly Bandz represents an equilibrium price. If not, what might the price due in the future given a continued increase in demand?
The laws of supply and demand can be used to show the relationship between producers and consumers. Prices are used in the market to help producers and consumers communicate with one another. The value-scales of producers and consumers are coordinated through the price system. If the supply of a product matches the demand for the product, the price is said to be at equilibrium and the quantity supplied will match the quantity demanded. If the price of a product is too high, supply will exceed the demand and there will be a surplus of goods or services. If the price of a product is too low, demand will exceed supply and there will be a shortage of goods or services.
The case studies for Hula Hoops and Silly Bandz exemplify how changes in demand for consumer products can shift tremendously over short periods. The video clip the Hudsucker Proxy provides an example of how prices are changed in response to demand. Prices will rise or fall based on the supply and demand for goods or services. The change in demand for Hula Hoops initially decreased the price due to a lack of demand. Subsequently, demand skyrocketed for Hula Hoops and led to a large increase in the price level as consumers who wanted to buy a Hula Hoop were willing and able to pay more for the toy. Today, we have seen a similar rise in demand for Silly Bandz; however the price level for Silly Bandz has not risen. Producers of Silly Bandz are sensitive to the idea of raising the price for their product; part of their marketing strategy is that their toy is a cheap alternative to video games and other children's toys that are more expensive. Given their unwillingness to raise prices, continued excess demand can only be met by increasing the supply, which include substitute brands entering the market and gathering market share.