Supply and Demand: Single and Multiple Changes in the Market for Homes

W. Edward Chi, Moreno Valley College. W. Edward Chi is now at the University of Southern California.
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Summary

The activity leads teams of students through successive simultaneous report application exercises on the market for homes. Students will apply supply and demand concepts, including multiple shifts, and use graphical analysis on a problem with designed ambiguity to promote the discussion of assumptions used in predicting outcomes

Context for Use

The activity is meant for a Principles of Economics (Macroeconomics or Microeconomics) course. Because the exercise involves multiple simultaneous shifts of the supply and demand curves and graphing curves, this application exercise is placed after students have experience applying concepts involved in individual shifts of the supply and demand curves and graphing such shifts. Students develop a deeper understanding of the supply and demand model, including assumptions used in applying the model to a real-word scenario. Subsequent activities can further apply these concepts, addressing topics such as housing affordability and government interventions in the market.

Overview

This activity is composed of multiple, successive, simultaneous report application exercise questions. The activity takes students through different "changes" in the market for homes (to buy) in Moreno Valley, California, a suburb 60 miles east of Los Angeles. The questions are arranged in two parts. In Part I teams answer successive questions, each about a single change in the market for homes. Teams graphically match the change and predict the effect of the change on equilibrium price and quantity by choosing one of four supply and demand diagrams contained on the last page of the student handout (diagrams A, B, C, or D). Teams each hold one letter card when called upon. Each question involves a change in demand or a change in supply. In Part II, all the changes in Part I are said to simultaneously occur. Teams are then to predict the combined effect on equilibrium price and quantity. Teams each hold one letter card when called upon. A team-generated supply and demand diagram is to support the team's choice. An additional aspect of this activity is designed ambiguity requiring teams to make assumptions in their responses to Part II.

Expected Student Learning Outcomes

Apply concepts involved in single and multiple shifts of the demand and supply curves.

Represent supply and demand changes and changes in quantity supplied and demanded graphically.

Invoke the concept of all else equal in making predictions.

Recognize that differences in assumptions lead to different predictions.

Information Given to Students

Before students begin the activity, each student receives the attached to guide them through a sequence of application exercises. Each exercise is designed to contain a significant problem, the same problem, a specific choice, and simultaneous reporting. Though each student has a copy and is expected to complete all parts individually, the team collectively decides on all answers in successive simultaneous reports.

Student Handout for Market for Homes Activity (Microsoft Word 2007 (.docx) 602kB Sep4 18)

Possible diagram responses to Part II are attached as a separate file. This can be shown to students or given to students after the simultaneous report of Part II is completed (i.e., after teams simultaneously reveal their answers: A, B, C, D, or E). It is recommended that part of the simultaneous report includes asking a spokesperson person from each team to turn in their Part II diagram corresponding to the team's answer choice. The diagram should support the choice and will likely vary between teams. A document camera to display teams' choices can be helpful.

Example Diagram Solutions for Part II of Market for Homes Activity (PowerPoint 162kB Nov27 17)

Teaching Notes and Tips

Prior student preparation includes knowing and applying the principle exogenous changes that shift the supply and demand curves: increase in consumer income, increase in supplier costs, decrease in the number of suppliers, increase in the price of a substitute, etc. This knowledge includes the difference between a shift of a curve and a movement along it (e.g., an increase in quantity supplied in response to a price change versus a change in supply or shift due to an exogenous change). This material may be difficult for students to apply so repeated practice applying it inside and outside of class is beneficial. The use of classroom response systems (clickers) in class or homework questions outside of class may help. Note that students should be reminded to invoke the all else equal assumption in Part I for single changes and in Part II for multiple simultaneous changes.

Each change in Part I is to be discussed in the traditional Team-Based Learning Application Exercise sequence: (1) intra-team discussion, (2) simultaneous reporting of teams' decisions, and (3) facilitated inter-team discussion. After one change is discussed, proceed to the next change. Note: in Part I, "Change 3" can be interpreted as a change in price in a complementary good: a home loan. Viewing a loan as a complementary good will be new for some students. Prior discussion of complementary and substitute goods (apartments, moving services, etc.) in the market for homes will help.

As Part II involves multiple simultaneous exogenous changes, some prior experience predicting outcomes in such multiple-change scenarios will help. Involved here are certain simultaneous exogenous changes where the resulting change in equilibrium price and quantity depends on the relative magnitudes of the exogenous changes. Thus, the answer to Part II depends on what teams assumed to be the relative magnitudes of the constituent exogenous changes. The facilitator is encouraged to state that estimating the magnitudes of changes in supply and demand markets is an additional step in a more accurate market analyses, to be covered in more advanced courses. In the facilitated discussion, it is important to have students justify their teams' answers to draw out the reason for multiple answers. If there is no disagreement in teams' answers, the facilitator should lead students to a different answer to illustrate how answers can differ. This discussion helps students see, in the context of shifts in supply and demand curves, that predictions depend on assumptions teams made. Part II also involves drawing supply and demand curves and multiple shifts in the curves. Though Part I involves shifts in curves, there are no student-generated graphs. To do Part II, students need to have practiced drawing supply and demand curves and shifts in the curves. A team's drawing can help justify the team's choice. A document camera can be used to compare teams' drawings that differed, or teams can reproduce them on a marker or chalk board for other teams to see. Alternatively, a gallery walk component can be added where each team creates a larger visual for a poster presentation to other teams, providing an additional opportunity for intra-team and inter-team discussion in evaluating other teams' posters. Gallery walks offer an additional opportunity for a simultaneous report, e.g., asking "Which team's poster represents the most convincing explanation?"

Assessment

Team responses may be used to assess learning goals. The worksheets students complete individually may be used as well, but more to assess the level of written participation in the team exercises. On end-of-module assessment questions given to students individually, instructors can use the same questions in the questions contained here, substituting the changes (shifts in demand and supply and changes in price) specified in the questions.

References and Resources