You are an economic spotter! An economic spotter is someone who can spot examples of economic concepts in historical places. This lesson sends you in a time machine back to the Gold Rush! Yep, you are about to become a Forty-Niner! These Forty-Niners use picks and shovels instead of footballs. See which economic nuggets you can find hidden in them thar' hills!
The California Gold Rush of 1848-1849 is a time period that we can learn a lot about shortages and how shortages affect prices. Can you predict what happened to prices when there was a shortage of tools for the Forty-Niners to dig for that precious gold?
In economics we are always talking about SUPPLY and DEMAND. Let's look at those words. Let's give you a pretend job. Pretend you make hammers. How many hammers do you think you should make? 25? 50? 100? 300? You are the only supplier of hammers to a town where 100 people live. The market supply of hammers represents the total number of hammers you would be willing to make and sell at all price levels. The Law of Supply says that if the price of hammers will also go up. For example, if the price of hammers was just $1.00, how motivated would you be to make hammers? But what if the price od hammers skyrocketed to $40.00 a hammer? Producers (like you) would be more likely to produce more hammers, because at this higher price, hammer manufacturers can make a higher profit--and all companies are motivated by profit.
Now we are going to talk about Demand. Pretend that you want to buy a hammer. Demand is the desire for the hammer along with the ability to pay for it. It is the relationship of price and how many hammers that you are willing and able to buy. The Law of Demand says that price and quantity demanded are "inversely" related. "Inversely" means opposite. In other words, when a price of something goes up, how many people want to buy that item goes down.
Now, you probably have this all figured out. If you have an allowance and are able to go shopping, you might want to buy gel pens. If the gel pen costs $4.00 you are going to only buy one or two, but if the gel pens are on sale for $1.00 a piece, you probably are going to buy more. And if you were making gel pens, you would want to make more gel pens if the price was $4.00 than $1.00.
But some things can turn Supply and Demand all upside down! For instance, if a hurricane hit your town, the demand for hammers to repair houses would increase even if the prices were high. Likewise, if the hurricane hit your workshop, you wouldn't be able to supply hammers to people, no matter what the price!
That's what we find during the Gold Rush - a time where Supply and Demand is all upside down. There were shortages of everything! People were coming across the country with hardly any of the things they needed. They thought they could just buy what the needed in California. But suppliers of tools to the miners left their jobs to dig for gold. Tools made in the East had to be shipped across the country or around South America before they got in the hands of the miners. A lot of people from all over the country went to California and that caused more shortages. All these reasons made simple items like coffee, picks, shovels, and sugar unbelievably expensive.
Go to the time machine on the U.S.Mint website to travel back to the Gold Rush.
See other factual examples of supply and demand at work during the Gold Rush .
Lots of people got rich during the Gold Rush, but amazingly some of the richest were the merchants who knew their laws of supply and demand! Those merchants who did not leave their stores to go and find gold actually ended up with the largest piles of gold. If you know your laws of supply and demand, it all "pans" out in the end!
Write a paragraph on a recent fad that resulted in a shortage of that item. Beanie Babies, tickets for a Britney Spears concert, Game Boy, ect. are examples of fads that would fit here. Draw connections between the demand for the fad and its price. Predict what happened when the fad is no longer a fad.