Theme 1: Introduction to markets and market failure

A shift in demand to the right (Increase in demand) A shift in demand to the left (Decrease in demand) An increase in consumer income A rise in the price of substitutes A fall in consumer income A fall in the price of substitutes A fall in the price of complements A rise in the price of complements A positive change in tastes and fashion A negative change in tastes and fashion

Draw a diagram to illustrate what would happen under the following circumstances. State whether you think the goods are complements or substitutes or whether there is another reason for the effect on demand 1.The effect for demand for petrol following an increase in the price of cars. 2.The effect on demand for public transport following an increase in the price of petrol. 3.The demand for Ipods following an increase in the price of downloads 4.The effect on demand of playstation 3s if the price falls 5.The effect on demand for holidays if income increases 6.The effect on demand for umbrellas during a rainy spell 7.The demand for Big Macs if the price of Whoppers rises 8.Demand for foreign holidays if airport tax rises

The law of diminishing marginal utility Utility is a measure of the satisfaction that we get from purchasing and consuming a good or service Total utility: The total satisfaction from a given level of consumption Marginal utility: The change in satisfaction from consuming an extra unit Standard economic theory believes in the idea of diminishing returns i.e. the marginal utility of extra units declines as more is consumed hence the downward sloping curve

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