1. IGCSE Economics 2.2 Demand and Supply

2. Learning Outcomes Describe the causes of changes in demand and supply conditions and analyse such changes to show effects in the market

3. LET’S START WITH DEMAND

4. Demand Demand is the quantity of a product that consumers want to buy.

5. Individual and Market Demand Individual demand is the demand of just one consumer Market demand is the total demand for a product from all of its consumers

6. Task…. PriceNumber of cans of coke 10php 20php 30php 40php 50php 60php 70php 80php 90php 100php Assume you drink Coke. What would your weekly demand be at these different prices?

7. Task…. Lets work out the Market demand Now can you plot the market demand on your hand out X axis – Quantity (Cans of Coke) Y axis – Price Php

8. Discussion 1.What is the shape of the line and which way does it slope? 2.What is the simple explanation for this?

9. Price and the ‘Law of Demand’ The Law of Demand states: ‘As the price of a product falls, the quantity demanded will usually increase’

10. The Demand Curve

11. Effective Demand The word ‘effective’ means that people must actually have the money to make the purchases e.g. we could all claim to demand a Porsche at $80,000. But, how many of us actually have that amount of money?

12. MOVEMENTS ALONG THE DEMAND CURVE

13. When price changes…. Movements along the demand curve are caused by a change in price of that good. This is called a contraction or an extension of demand.

14. Movements along the demand curve PRICE £ QUANTITY Demand Q1Q2Q3 P3 P2 P1 When price decreases and demand increases, this is called an Extension of Demand When price increases and demand decreases, this is called an Contraction of Demand

15. OTHER FACTORS AFFECTING DEMAND

16. Task In 4 groups….. You are going to be given some goods/services to consider. What factors (other than price) might change the weekly market demand for these products

17. What factors might change the demand for these products? Nintendo Wii Magnum Ice cream Zimmer Frames

18. What factors might change the demand for these products? Gym Membership Butter Batiste Dry Shampoo

19. What factors might change the demand for these products? Chicken Unleaded Petrol Pizza Hut Pizza

20. What factors might change the demand for these products? Cadbury Dairy Milk Umbrellas Bus travel

21. Task Write a list/mind map to show the factors that affect demand

22. Influences on Demand  Price of other products (Substitutes and Complements)  Tastes and Fashions  Advertising and promotion  Seasonal factors  Government Interventions  Weather  Consumers incomes  Changes in the population

23. SHIFTS OF THE DEMAND CURVE

24. Shifts of the demand curve Whereas a change in price causes a movement along the demand curve (expansion or contraction) Changes in ALL other factors will cause a shift of the whole demand curve

25. Shift to the right At all price levels, more mars bars are demanded D D1

26. Shift to the left At all price levels there is a decrease in demand D D1

27. Mars launch a hugely successful advertising campaign The popularity of dark chocolate grows with consumers Nestle launch a special offer on KitKats The weather is really hot Mars launch a hugely successful advertising campaign Shift to the left or right? The government launch a healthy eating campaign A recession means that consumers incomes decrease

28. Recap Questions 1. What does the Law of Demand State? (1 mark) 2. Draw a fully labelled Demand Curve (3 marks) 3. On your diagram show an ‘Expansion of Demand’ (1 mark) 4. Explain what is meant by a ‘Contraction of demand’ (2 marks) 5. List 3 factors that would cause a shift in demand (3)

29. Influences on Demand  Price of other products (Substitutes and Complements)  Tastes and Fashions  Advertising and promotion  Seasonal factors  Government Interventions  Weather  Consumers incomes  Changes in the population

30. THE PRICE OF OTHER PRODUCTS

31. The price of other products The effect of a price change on product x or a price change in product y will depend on whether product y is: Unrelated A substitute A complement

32. Substitutes Substitute products compete for demand as they can be used in place of each other These products can be competitor products or other products that fulfill the same needs

33. Suggest some substitutes for these products….. Train travel

34. Complements Complements are products that are joint in demand as they are related products

35. Suggest some complements for these products…..

36. INCOME

37. A change in consumers incomes will cause a shift in the demand curve This shift could be small or large A change in income will affect normal and inferior goods differently

38. Normal Goods For most goods, as income rises, demand will rise as consumers can now afford to buy more of everything This will result in a shift to the right of the demand curve For some products this could be a very small shift There are some products that consumers will demand lots more of if their incomes increase. These are known as luxury goods

39. Inferior Goods Inferior goods are those that consumers will buy less of if their incomes increase This is because they will buy higher priced alternatives instead An increase in incomes will cause a shift to the left of the demand curve

40. Normal, Inferior or Luxury? Think about your own demand, what you would consider to be normal, inferior and luxury products?

41. Question: What factors might cause the general level of consumers incomes to change?

42. Good promotion can greatly increase the demand for a product Promotion includes Advertising, Packaging and Sales Promotions The Cadbury Gorilla advert increased demand for Cadbury Dairy Milk by 9%

43. Shifts in the Demand Curve PRICE £ QUANTITY D2 D1 D3 A right shift in the demand curve means that at any given price, more of a good is demanded A left shift in the demand curve means that at any given price, less will be demanded

44. WHAT FACTORS MAY HAVE LED TO THESE SHIFTS IN DEMAND?

45. What might have caused the following changes in demand? Between Feb & May 2007 – ASDA sold 1.2m more pegs than during the same period in 2006. WHY?

46. What might have caused the following changes in demand? Since 2006 10m pints of Tyskie (Polish Beer) were sold in 6 months! It was not available in 2005. WHY?

47. What might have caused the following changes in demand? Brits change to the dark side (of Chocolate) sales have almost doubled 96% to £85m this year! Why?

48. What might have caused the following changes in demand? An increase in the need for childcare, nannies and Au pairs. Why?

49. EXPLAINING CHANGES IN DEMAND

50. Task – Contraction, Expansion, Shift left or shift right? 1.The demand for bicycles if there were a large tax increase on motor scooters 2.The demand for foreign holidays if there was an increase in consumers incomes 3.The demand for DVD’s if the price of DVD players fell dramatically 4.The demand for cars following an increase in income tax 5.The demand for ice creams if the price went up 6.The demand for Perrier water if newspapers report finding traces of benzene in some bottles 7.The demand for carrots if there is an increase in the size of the population

51. NOW LETS THINK ABOUT SUPPLY

52. Recap Questions…. 1. What is an extension of demand? (2 marks) 2. What is a contraction of demand? (2 marks) 3. What is meant by a substitute? (1 mark) 4. Give 3 substitutes for a woolly jumper (3 marks) 5. What is meant by a complement? (1 mark) 6. Give 3 complements for Laptops (3 marks) 7. What is meant by an inferior good? (2 marks) 8. Give 3 examples of inferior goods (3 marks) 9. What is meant by a ‘normal’ good? (2 marks) 10. Give 5 examples of something that would cause a shift to the right of the demand for Hagen Daz Icecream (5 marks) Total – 24 marks

53. Suppliers….. Who are they? Who are suppliers? What do businesses do? What is their main objective? How is profit calculated?

54. Definition- Supply Supply is defined as the quantity of a product that producers are willing and able to supply onto the market at a given price in a given time period.

55. Questions What do you think is the difference between individual supply and market supply? What do you think will happen to supply as price increases?

56. The law of supply as the price of a good rises, so producers expand their supply onto the market.

57. Example….. The price of Quinoa grains increases Who are the suppliers in this market? What scarce resource do the suppliers have? What might suppliers in this market now do if they wish to maximise their profits?

58. Task…. Given what you already know about supply…… Draw a fully labelled Supply Curve

59. Supply Curve Quantity Price S

60. Supply Curve Quantity Price S P Q

61. Task….. Can you draw: A diagram to show an Extension of Supply A diagram to show a Contraction of Supply

62. Extension of Supply Quantity Price S P Q P1 Q1 The price increased from P to P1, resulting in an extension of supply from Q to Q1 (a movement along the supply curve)

63. Contraction of Supply Quantity Price S P Q P1 Q1 The price decreased from P to P1, resulting in an contraction of supply from Q to Q1 (a movement along the supply curve)

64. Task Textbook Activity 2.13 (page 50)

65. FACTORS CAUSING A SHIFT IN SUPPLY

66. The important bit….. Businesses tend to make decisions that will use their resources to maximise profit. They will supply more of goods that are profitable and less of goods which are less profitable Revenue (Price) CostsProfit

67. Question… What could happen to make a particular good less attractive for a firm to make? Revenue (Price) CostsProfit

68. Factors affecting supply… Changes in the costs of factors of production Technological Advances The price/profitability of other products Expectations about the future Global Factors

69. Task Draw a fully labelled diagram to show a shift to the right of supply Underneath write a list of all of the factors that could cause this. E.g. A reduction in the cost of raw materials A reduction in the cost of labour Now do the same for a shift to the left of supply

70. Shift to the right of supply Quantity Price S P Q Q1 S1

71. Shift to the left of supply Quantity Price S P Q Q1 S1

72. A shift to the left of the supply curve for rice

73. A shift to the right of the supply curve for red wine

74. A shift to the right of the supply curve for cakes

75. Whiteboard Challenge – Contraction, Expansion, Shift Left or Shift Right The supply for potatoes if the price of cabbages increases The supply of gold jewellery if there is an increase in the price of gold The supply for jet engines if there is a breakthrough 3D manufacturing technology The supply for oil if oil producing companies expect the price to go up soon The supply for silver if the price decreases The supply of wheat if there has been a drought

76. EXPLAIN QUESTIONS…..