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    Furby Mania

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    Why do things cost what they do, and why do prices change? How should we make decisions about where to spend money? In this Project, you'll use fundamental economic and financial principles to analyze the changes in the price of Furbies over time and analyze choices about buying and selling Furbies.

    Remember "Furby," that strange furry toy from 1998? According to Wikipedia, Furbies originally sold for $35 each. However, they were so in-demand during the 1998 holiday season that they often resold for over $300. Today, you can buy a 1998 Furby for less than $15! Why? Complete the Supply and Demand Worksheet to find out!

    Before you start the Supply and Demand Worksheet, make sure you are familiar with the following terms and concepts:
    Economics concepts:
    •Supply and demand graphs
    •Surplus and shortage
    •Equilibrium point
    •Shifts vs. movements

    Finance concepts:
    •The present value of money
    •Stocks vs. bonds

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    Solution Preview

    Graph 1
    The graph below shows supply and demand curves for the Furby market before Furby toys were popular.

    1a. What does the blue line represent? What does the red line represent?
    Blue line represents supply curve for furby toys and red line represents demand curve for furby toys.

    1b. What is the space on the graph between the blue, green and red lines called? What does it represent?
    Area is above the equilibrium point representing excess supply or surplus. The demand for the furby toys is low whereas the supply is higher resulting in a surplus situation.

    1c. Estimate the equilibrium point. What does it represent?
    Equilibrium is the point at the intersection of blue and red line. At this point, the quantity of furby toys demanded is equal to the quantity of furby toys supplied.
    Graph 2
    Sketch a graph of supply-and-demand curves that depict the holiday season when the Furby craze took off, but Furby toys still retailed for $35. Use the same colors as above. Mark the area that represents the shortage with a green line.

    2a. Explain what changed between Graph 1 and Graph 2. Is the change in demand represented by a shift in the curve or a movement along the curve? What does this do to the equilibrium point?
    The demand curve has shifted to the right. The change in demand is ...

    Solution Summary

    The expert solves Furby mania worksheet in simple to understand manner.