Market Analysis: The Market for Bagels

As an exploration of Supply and Demand, let's look at the market for bagels on the local "College Avenue" – you know the place, it's the concentration of shops catering to the local university. At the beginning of our exercise the market is at rest, or equilibrium, with bagels selling for $1.29 each and 843 being sold in an average week.

Exploration: From this starting point your task is to predict which way price and quantity will move as conditions on college avenue change. Use the graph to help you work through the various cases.

The window above contains a simple supply and demand model. Equilibrium in the market is determined by the place where no one wants to change their behavior; suppliers are not willing to bring more or less than buyers are willing to buy, and buyers are not willing to buy and more or less than suppliers are willing to sell. Since the demand curve is a representation of the quantity buyers are willing to buy at each and every price, and the supply curve is a representation of the amount sellers are willing to sell at each and every price, the equilibrium occurs at their intersection. To use this graph, click and drag either the S or D left or right to decrease or increase supply or demand. Then click on the New Equilibrium button to see how the price and quantity will change. If you wish to make an additional change, click on the Update button to "lock in" the current equilibrium before shifting S or D again. To set the graph back to the original starting position, click the Reset button.

1. What would be the likely effect on the equilibrium price and quantity of bagels if a new bagel shop opened up on College Avenue?
   
   
2. Suppose enrollment in the university rises by 10%. What would be the short-term result in the market for bagels?
   
   
3. Suppose BOTH occurrences above take place – enrollment rises, pushing up both price and quantity and, as a result, someone opens a new bagel shop on College Avenue. What would be the likely result in the market for bagels?
   
   

Exploration: Using the Bagels applet for general application to supply and demand questions.

Even though the bagels applet is limited in its price and quantity range, we can use the general relationship to make inferences about behavior that is affected by supply and demand. All we need do is simply ignore the numbers themselves (since they apply specifically to bagels) and concentrate on the general directions of movement as things change.

Click on the Reset button to begin, and remember we are only looking at directions of change, not amounts.

1. Think about your own behavior, and the behavior of those around you. What is likely to happen to the number of meals served in the campus dining facility if tuition rises?
   
   
2. How will student's spring break plans change if an airline announces a dramatic fare reduction to the Bahamas?
   
   
3. What effect will this have on the price of hotel rooms in the Bahamas?
   
   
4. What effect will this have on the price of hotel rooms In Florida?
   

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Exercise picked up from the 2e Macroeconomics textbook.