Season 6, Episode 10: Complementary and substitute goods in production can sometimes be tricky to teach, since there are subtle differences from complements and substitutes in consumption. This clip provides an excellent example of both. Cameron Sheldrake finds that the quantity of corn he supplies on the market often exceeds the quantity demanded. In the past, this surplus corn would be discarded, but Cameron has discovered he can use it to make sweet corn tortilla chips. This is a classic example of complementary goods in production. Cameron produces his regular crop, and with the byproduct (in this case, the leftover corn), he is able to produce another good. However, if demand for his tortilla chips increases, it may become more profitable to use more than just the surplus corn to make chips. In that case, he will decrease his supply of corn for his traditional market and increase his supply for the chips. At this point, they become substitute goods in production. Another determinant of supply is the cost of inputs. Cameron mentions that the cost of sweet corn used in his chips is twenty times more than the cost of conventional corn flour used in regular chips. Perhaps this is why we don’t see others supplying this product. This price gets passed on to the consumer. Many consumers will consider this product to be a substitute for regular tortilla chips. With a price of $3.49 per single serving bag vs. $0.99 for regular chips, demand won’t be increasing for this product unless they can differentiate it substantially. Take the discussion to the next level, and ask students for a plausible explanation for why Cameron doesn’t lower the price of his corn to eliminate the surplus. (Hint: think about total revenue and price elasticity of demand.)
Season 2, Episode 2: Do you increase revenue by lowering or raising prices? It all depends on the price elasticity of demand for your product or service. Brian Spencer is looking for an investment from the sharks so he can mass market his amazingly cool, extreme-sport pogo stick. However, their advice is to increase his price (by 100-400%!). Though he’ll sell fewer units with a higher price, his total revenue will increase if demand for his product is inelastic. What causes demand to be inelastic? Ask your students this question and then see if they think the demand for Vurtego pogo sticks will be inelastic.
Season 5, Episode 10: Jenn Deese and Kelley Coughlan pitch Pursecase, a smartphone case that doubles as a small purse. Kevin O’Leary is flabbergasted by its high price and immediately argues they could change cut the price by 50% and sell ten times more than they are currently selling. In his mind, PurseCase is a product with very elastic demand – so elastic that he thinks they could lower the price and collect much more in revenue. Based on the sales numbers given in the video, students can actually calculate the elasticity of demand for this product perceived by Mr. O’Leary. Students sometimes have difficulty understanding how a company can make more money by lowering the price of a product. This is a good example to begin that discussion.