Market prices vary depending on many factors. When goods and services become relatively more scarce, market prices increase. This increase affects buyers and sellers. Buyers must decide if the good or service is worth the increased price, and sellers must decide if they can make a profit by selling the good or service at an increased price. In this lesson you will learn how consumer demand for the delicacy known as a truffle drives entrepreneurs to invest resources in producing them. You will also learn of the darker side of the truffle market. Unmet demand has lead to an influx of inferior truffles from Chinese producers attempted at being fraudlently passed off has the real thing.
In this lesson, you will watch a 60 minutes report entitled 'The Trouble With Truffles.' While watching, you will use an interactive note-taker to record supporting details about three of the story's main ideas. Then, using your notes, you will answer questions related to the story.
Watch the 60 Minutes Report.
While you are listening, use the note-taker to find and record supporting details for three main ideas. The three main ideas you will focus on today are these:
1. Scarcity of Truffles
2. Price of Truffles
3. Buyers and Sellers of Truffles
Additionally, as you watch the segment, record any words which you don't know or which you think are important economic terms.
Then watch the report again to gather additional supporting details and possible definitions of the vocabulary words, using context clues; record these in your note-taker.
Finally, you will be asked a series of questions related to the story.
Why are truffles so valuable _______.
a) Consumer preferences
d) Chinese Substitutes
2) What contributes to the scarcity of truffles?
a) Truffles can't be produced in labortories
b) Lack of a reliable technique for cultivation
c) Exactly where and why truffles grow is impossible to predict
d) All of the above
3) What is the incentive to a producer to use the Chinese truffles but not explicitly label their product as such?
a) Increase their sales in China
b) Decrease their sales in China
c) Sell Truffles at a lower price than they otherwise would
d) Sell Truffles at a higher price than they otherwise would
Question 4: What is the price per pound of black truffles?
Question 5: If truffles could be mass-produced in a laboratory, what do you think would happen to their price?
Question 6: Why do some restaurant owners continue to use truffles despite the increased cost and risk? What does the increased cost and risk do to their profits?
You have listened to a news story discussing scarcity and its effects on buyers and sellers. One of the restaurant owners is faced with a decision regarding whether or not they will continue to sell truffles.
Discuss the following scenarion with a partner. Think about each question and record your ideas on paper.
You are a restaurant owner and must decide how to deal with the increase costs (related to securing and insuring) truffles. Consider the following:
Will you continue to sell truffles at the current price, or raise your prices?
What are the benefits of keeping your prices the same for the season even though you are spending more money to secure your supply of truffles? How would keeping prices the same affect your profit?
What might happen if you raise your prices to compensate for the higher cost of selling truffles? Could this affect your profit?
What are the possible effects of removing truffles completely from your menu?
By the conclusion of this lesson, you should be able to identify at least three main effects that scarcity has on buyers and sellers, and you should understand that scarcity directly affects profit in the market.
1. Hand in your note-taker. Your answers should reflect an understanding of scarcity and its effects.
2. Discuss Activity 2 with your classmates and hand in your recorded ideas. Focus your discussion on the effects the increased cost of selling truffles. Be sure to discuss the potential effects that the high demand and low supply would have on your prices and profits.