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From the specification a) Factors leading to a change in supply: – changes in the costs of production – introduction of new technology – indirect taxes – government subsidies – external shocks

Guidance from Edexcel

Lesson Objectives To be able to discuss the main factors that lead to a change in quantity supplied To be able to answer sample exam questions based on the topic area

Starter Which of these is correct and which is wrong? Supply goes down Quantity supplied decreases Price of oil goes up The price of oil is raised Minimum wage is more Price of oil increases Put the right pair below the tick

Definition of Supply is measured in terms of the quantity of a good or service that a producer is willing and able to make available on the market, at a given price, over a given period of time.

Changes in the costs of production If the costs of production increase (for example) – Due to rise in raw materials – Rise in minimum wage – Rise in overheads – Rise in rent or mortgage rates on premises Then the amount supplied will decrease as less profit will be made Businesses will switch to production of more profitable products (profit signalling mechanism at play here) Article: The future of chocolate – why cocoa production is at risk

Introduction of new technology New technology means that more goods can be supplied – Mechanisation and automation of production processes means supply can increase – Mass production methods improved to increase capacity Watch a video on how plastic bottles are made. How much of the video process is by hand and how much is automated by technology?

Indirect taxes When the government increases tax on goods such as petrol then supply will decrease VAT / Customs tax / Excise tax are all indirect taxes and when applied to goods it makes supplying them less attractive. This can lead to a decrease in supply….

Government subsidies This is a payment from the government to encourage more suppliers to enter the market and to supply more. With a subsidy there is an increase in supply. For example the Government pays subsidies to wind farm manufacturers to erect turbines offshore in the UK. This adds about £18 a year to a UK householder’s energy bill. Without these subsidies not enough turbines would be built.

External shocks Changes in oil price Change in tax rate Changes in labour laws (e.g. length of working week) For example if the cost of oil increases this increases cost of production, and may lead to job losses or cost cutting, and will result in a decrease in supply

Plenary game: Increase or decrease in supply? 1.Increase in oil price 2.Increase in minimum wage 3.Increase in orders 4.Increase in productivity 5.Increase in VAT rate 6.Decrease in inflation 7.Introduction of robots 8.Introduction of new labour laws

Revision Video

Glossary Productivity; the rate at which goods or services are produced Shock; an event which causes a change within an economy which occurs outside of it. Unpredictable and may affect supply. Automation; method of operating or controlling processes by automatic means using devices. Reduces need for human interaction. Mechanisation; method of operating or controlling processes using machinery Indirect tax; taxes levied on products or services before they reach the consumer e.g. VAT and excise Government subsidy; a grant or gift of money from the government to encourage supply of certain goods e.g. milk subsidies

From the specification a)The interaction of supply and demand b) The drawing and interpretation of supply and demand diagrams to show the causes and consequences of price changes

Guidance from Edexcel

Lesson Objectives To be able to discuss the interaction of supply and demand To be able to draw supply and demand diagrams relating to price changes To be able to interpret supply and demand diagrams relating to price changes To be able to answer sample exam questions based on the topic area

Starter If the price of these trainers drops from £60 to £20 will demand for them; A.Increase B.Decrease Can you conclude that there is a relationship between price and demand? If they are £20 will supply increase or decrease?

Definition of supply This is the amount of product or service that a business is willing and able to provide at a given price We draw a supply curve:

Definition of demand This is the amount of product or service that customers are willing and able to buy at a given price We draw a demand curve

As price rises so demand will fall

How does supply and demand interact? Market forces can cause changes in the price of an item. For example if there is poor weather and there are few strawberries, the price will go UP per punnet as they are rarer and demand has not changed… If there is a good summer and lots of new farms produce strawberries there will be a glut of supply, they will be in every shop and so price will go DOWN…

EFFECT OF PRICE CHANGES ON DEMAND CURVE

Changes in Demand due to PRICE Change in price will cause a MOVEMENT along the demand curve a b If the price of a car goes up then then demand will move from point a to point b on the demand curve – as less goods are demanded at that price Costs more? Less customers

Changes in demand due to NON-price tastes and preferences of consumers (trends) the number of consumers the incomes of consumers (rising real income) (wages) the prices of complimentary goods consumers’ expectations concerning future availability or prices of the goods. Cost of loans Economic growth New products entering the market Advertising Population changes If any of these factors change then demand will change and will cause a SHIFT in the demand curve up or down

Changes in demand curve due to NON- PRICE If consumer incomes rise then the demand curve (for a normal good) will SHIFT up and right

Changes in demand curve due to non- price determinants If tastes for a good fall and demand falls then the demand curve will drop to the left

Drawing demand Shifts with demand and supply lines s D1 D2 P Q

EFFECT OF PRICE CHANGES ON THE SUPPLY CURVE

Changes in supply due to PRICE Changes in PRICE may cause movement along the supply curve a b As the price rises the business wants to supply more goods at this price, so quantity goes up with price

Changes in supply due to NON-Price Weather e.g. Loss of crops Technical progress Change in price of productive factors (not of cost of good to consumer) Changes in price of raw materials Changes in tax Changes in subsidies

Changes in supply due to NON- PRICE If weather is good and crops flourish then supply curve will shift to the right

Changes in supply due to NON-PRICE If the cost of raw materials goes up the supply curve will shift to the left

Drawing supply Shifts with demand and supply lines S1 D P Q S2

Summary If the business changes the price of the product - this causes movement along the supply curve Non-price (like weather or incomes) causes a shift of the whole supply curve left or right Other factors may CAUSE price to change which means a shift in the curve

Walkthrough question Question Draw a diagram to illustrate the impact of rising costs such as staff wages on an estate agency business.

Walkthrough solved P1 Q1 D S1 S2 P2 Q2

Sample question 1 8 Marks Case study on next slide 5 marks for diagram

Answer question 1

Answer Q1 - Diagram S D1 D2 Q P Q1 Q2 P1 P2

Sample question 2 8 Marks Case study on next slide 5 marks for diagram

Answer question 2

Answer Q2 - Diagram S1 D1 D2 Q P Q1 Q2 P1 P2 S2

Sample question 3 8 Marks Case study on next slide 5 marks for diagram

Answer question 3

Answer Q3 - Diagram S D1 D2 Q P Q1 Q2 P1 P2

Revision Video

Glossary Supply; amount businesses willing to supply Demand; amount customers willing to buy Supply curve; a line to plot the relationship between price and quantity supplied Demand Curve; a line to plot relationship between price and quantity demanded Normal good; products where an increase in consumers income means an increase in demand Inferior good; products where an increase in consumers income means a decrease in demand Substitute good; an alternative product used to satisfy a want Complementary good; products that may be used together e.g. coffee machine and coffee pods, smart phone and paid for apps

Homework – Due Next Thursday Print out and read the slides. Print off the articles on slides 7 & 11. Highlight and annotate these. Bring them to class next Thursday. Read the book. Pages and take notes. Bring these notes to class.