Supplementary resources for high school students
Definitions and Basics
Supply, from the Concise Encyclopedia of Economics
The most basic laws in economics are those of supply and demand. Indeed, almost every economic event or phenomenon is the product of the interaction of these two laws. The law of supply states that the quantity of a good supplied (that is, the amount that owners or producers offer for sale) rises as the market price rises, and falls as the price falls. Conversely, the law of demand says that the quantity of a good demanded falls as the price rises, and vice versa. (For reasons unknown, economists do not really have a “law” of supply, though they talk and write as though they did.)…
Economists often talk of supply “curves” and demand “curves.” A demand curve traces the quantity of a good that consumers will buy at various prices. As the price rises, the number of units demanded declines. That is because everyone’s resources are finite; as the price of one good rises, consumers buy less of that and more of other goods that now are relatively cheaper. Similarly, a supply curve traces the quantity of a good that sellers will produce at various prices. As the price falls, so does the number of units supplied….
In the News and Examples
A Little History: Primary Sources and References
George Stigler, from the Concise Encyclopedia of Economics
Take, for example, Stigler’s “A Note on Block Booking.” Block booking of movies was the offer of a fixed package of movies to an exhibitor; the exhibitor could not pick and choose among the movies in the package. The Supreme Court banned the practice on the grounds that the movie companies were compounding a monopoly by using the popularity of the winning movies to compel exhibitors to purchase the losers….
But why did block booking exist? Stigler’s explanation was that if exhibitors valued films differently from one another, the distributor could collect more by “bundling” the movies. Stigler gave an example in which exhibitor A is willing to pay $8,000 for movie X and $2,500 for Y, and B is willing to pay $7,000 for X and $3,000 for Y. If the distributor charges a single price for each movie, his profit-maximizing price is $7,000 for X and $2,500 for Y. The distributor will then collect $9,500 each from A and B, for a total of $19,000. But with block booking the seller can charge $10,000 (A and B each value the two movies combined at $10,000 or more) for the bundle and make $20,000. Stigler then went on to suggest some empirical tests of his argument and actually did one, showing that customers’ relative tastes for movies, as measured by box office receipts, did differ from city to city….
For his earlier work on industrial organization and his work on the effects and causes of regulation, Stigler was awarded the 1982 Nobel Prize for economics….