1.2 Demand and Supply Workbook

The Demand
and Supply Model
o The Demand Curve

o The Supply Curve
o Equilibrium
o Changes in Demand & Supply
o Price Mechanism
o Consumer & Producer Surplus
1
An Introduction to Demand
1|The Demand & Supply Model
Introduction
 Demand is the amount of a good or service that consumers are willing and able to
buy at a given price.
Demand for Hot Chocolate
Price Quantity Demanded

£5
£4
£3
£2
£1
50p
25p
Questions…

1. If the price of the hot chocolate shown was £3, what would our class’ quantity
demanded be?
2. What would happen to quantity demanded if:
a) Price fell to 50p
b) Price rose to £4
3. Suggest what would happen to demand if…
a) The income of the class increased by £100
b) Another similar hot chocolate was available at a price of £2
4. Can you suggest any other reasons why demand for hot chocolate may go up or down
other than those suggested in questions 2 and 3?
Extension: How do you think the changes in question 2 and question 3 would be illustrated on our
demand curve diagram?
1
Demand & Supply: Demand Curve
What is Demand?
Demand The amount of a good or service that consumers are

willing and able to buy at a given price
It is important to remember that in economics we are concerned with effective demand. This is
the quantity of a good or service that consumers would be willing and able to purchase at any
given price. We are not interested in how much consumers would buy if they had unlimited
resources (desire); of course we know that consumers do have limited resources, and so in
economics, when we refer to ‘demand’ we are always talking about ‘effective demand’, ie,
wants/desires backed up by purchasing power.
It is also worth noting that individual demand is the demand of one person whereas market
demand is the demand that comes from everyone in a particular market.
Demand and Utility
Utility is the satisfaction people get from consuming (using) a good or a service. Utility varies from
person to person. Some people get more satisfaction from eating chips than others. Even the
same person can gain greater satisfaction by eating chips when hungry than when he has lost his
appetite.
‘Utility’ means ‘benefit’. Rational consumers demand goods and services in order to maximise their
personal utility. They will be guided by price signals from the market in making decisions about how
to allocate their scarce resources between different goods and services in order to maximise their
utility.
?
Point to Ponder
What product or service gives you the most utility?

How much more than the retail for this product or service?

Demand for DVDs: an example of a demand curve
A demand schedule below tells us how many DVDs would be demanded by consumers in the UK
at each given price over the course of the year, 2012.
The demand schedule for DVDs for 2012

Price of DVDs (£) Quantity demanded in 2008 (millions)
2 200
4 180
6 160
8 140
10 120
12 100
14 80
16 60
18 40
20 20
Here is the demand curve for DVDs in 2012
Points to note:
 Price (p) is always on the vertical axis and Quantity demanded (Qd) is always on the horizontal
axis
 The demand curve always slopes downwards from left to right. This is because of the inverse
(negative) relationship between quantity demanded and price, embodied in the law of
demand:
“There is normally an inverse (negative) relationship between price and quantity

demanded, all other things being equal.”
 When isolating the relationship between 2 variables, here Qd and P, we use the phrase ‘all
other things being equal’ to indicate that all other variables that may affect Qd are assumed to
remain constant. Economists use the Latin phrase ‘ceteribus paribus’ to say ‘all other things
being equal.’
 The slope of the demand curve tells us how Qd for a product changes in response to a change
in P, and nothing else. Only a change in P can cause a movement along the demand curve.
Such movements along the demand curve are called a contraction or expansion in demand.

Movements along the demand curve
From the demand curve we drew you can see what happens to the demand for DVD as price
changes.
Assume the current (average) price of DVDs in 2012 is £14. What happens if price changes to…
Demand before Demand now

Falls to £10 80 million 120 million This is called an
expansion in
demand
Rises to £16 80 million 60 million This is called a
contraction in
demand
Illustrate these changes on the demand curve below:
Price
D1
Q
Shifts in demand
All other factors (other than price of DVDs) will cause the demand curve to shift its position i.e.
these can lead to an increase or decrease in demand.
In general factors that affect demand are:
 The (real) income of consumers & income tax changes: higher income allows consumers
to buy more goods and services. This could occur if income tax fell or if wages & salaries rose.
 The demand for substitutes (e.g. Pepsi & Coke): consumers may demand less goods &
services if they decide to buy a substitute good instead, possibly due to a cheaper price or
increased quality.
 The demand for complements (e.g. dishwasher tablets and dishwashers): if consumers
demand more dishwashers there will be more demand for complements like tablets.
 Fashion and changes in consumer tastes: consumers may start to prefer products if they
become more fashionable or if consumer tastes move towards a certain product.
 Changes in legislation e.g. less demand for smoking after the smoking ban?
 Advertising: should increase the demand for products if it is effective
 Changes in population: should also increase demand as there are more people to buy goods
and services e.g. rising populations in China and India.
Shifts in demand for DVDs
DVDs have become a popular form of home entertainment, almost exclusively replacing videos for
watching films and superseding CD-ROMs as a means of storage. However, DVDs are now facing
competition of their own from new high-definition DVDs (HD-DVD and Blu-ray). These new media
have higher storage and better quality picture and sound; many experts expect these to replace
DVDs in the next few years. They predict that many consumers will switch once either consumer’s
income rise or prices drop, making the new media more affordable.
Suggest what effect on DVD demand would the following have?
Fall in price of HD-DVD and Blu-ray
Fall in price of DVD players

a
Change in consumer tastes

towards HD-DVD and Blu-ray
Change in legislation declaring

DVDs unsafe to use due to viruses
contained on them
Increased number of people

owning TVs in China
Increase in people’s income in the

UK
Increased advertising for DVD
Illustrate one of these changes on the demand curve below:
Price
D1

Joint Demand, Competitive Demand and Derived Demand
Joint Demand When an increase in demand for good X, causes

consumers to demand more of good Y.
E.g. complements such as dishwasher tablets and

dishwashers
Competitive Demand When the demand for one good, reduced the demand for
another
E.g. substitutes such as Channel 4 and BBC
Derived Demand When goods are demanded only because they are needed
for the production of other goods
E.g. Vaseline and crude oil, if there is consumer demand

for Vaseline, then producers will demand crude oil
?
Point to Ponder
What goods (if any) are related to DVDs in terms of:
a) joint demand
b) competitive demand
c) derived demand
1
Demand Questions
 You need to be able to apply the basic theory of demand to a variety of markets.
 For each question explain how the change will affect demand and illustrate it on the
diagram given.
1.
Market: Wheat P
Change: Rising real incomes in India
Explanation:
Q
2.
Market: Diamonds
P
Change: Decreased price of diamonds
Explanation:
Q
3.
Market: Owner-occupied housing P

Change: Credit Crunch
Explanation:
Q
4.
Market: Labour Market (Builders) P

Change: Decreased Demand for Housing
Explanation:
Q
5.
Market: Cars P
Change: Rising world population
Explanation:
Q
6.
Market: Coca-Cola P
Change: Success of innocent smoothies
fuelled by 5-a-day campaign
Explanation:
10 | T h e D e m a n d & S u p p l y M o d e l
7.
P
Market: Supermarket own brands
Change: UK recession
Explanation:
Q
8.
Market: Nintendo Wi Game P

Change: Falling price of PS3 Console
Explanation:
Q
9.
Market: Shares for Sainsbury’s P

Change: Profit warning issued by Sainsbury’s
Explanation:
10.
P
Market: Steel
Change: Increased demand for cars
Explanation:
Q
11.
Market: Child seats for cars P

Change: Stricter car safety legislation
Explanation:
Q
12.
Market: Oil P
Change: Speculators believe the price will rise
Explanation:
p
1
An Introduction to Supply
Would you sell your mobile phone?
To understand the supply curve and the supply topic in general you need to think like a
business, rather than as a consumer.
One example of something you could supply to the market is your mobile phone. Complete
the table below showing – what price you would sell your mobile for (your individual
supply), your prediction about the class (predicted class supply) and actual class supply
(when we vote).
Individual Predicted Class Class

Supply Supply Supply
£10
£20
£40
£60
£80
£100
£150
What if…?
 You are selling a different phone that cost you twice as much?
 The Government gave you £40 if you sold your phone (recycling subsidy)?
 The Government taxed you £5 if you sold your phone?
p
1
Demand & Supply: Supply Curve
What is Supply?
Supply How many goods firms are willing and able to put on the
market (ie, supply) at any given price.
Just as previously we constructed a demand curve which told us how much of a good consumers
were willing and able to buy (ie, demand) at any given price, we can also construct a supply
schedule. As with demand, there is a distinction between individual supply and market supply.
The Supply Curve for Wheat

SUPPLY SCHEDULE FOR WHEAT
Price of wheat/tonne (£) Qs of wheat (tonne - millions)
10 2
20 4
30 6
40 8
50 10
60 12
70 14
From this we can construct a supply curve:
Points to Note:
 Again, price always goes on the vertical (Y) axis, quantity supplied on the horizontal (X) axis
 The slope of the supply curve tells us how Qs for a product changes in response to a change in
P, and nothing else.
 Whilst the demand curve sloped downwards from left to right (negatively sloped) the supply
curve slopes upwards from left to right (positively sloped).
Why is supply upward sloping?
Supply curves for most products slope upwards from left to right giving a positive relationship
between the market price and quantity supplied. Two main reasons for this are as follows:
1. When the market price rises (for example following an increase in consumer demand), it
becomes more profitable for businesses to increase their output.
2. Higher prices send signals to firms that they can increase their profits by satisfying demand in
the market. When output rises, a firm's costs may rise, therefore a higher price is needed to justify
the extra output and cover these extra costs of production
Movements along the supply curve
The only factor that causes a movement along the supply curve is price. Suppose the market price
for wheat was £40 per tonne. What happens when price changes to…
Supply before Supply now

Falls to £30 8 million 6 million This is called a
contraction in
supply
Rises to £60 8 million 12 million This is called an
expansion in
supply
Illustrate these movements along the supply curve on the axes below:
Price
S
Shifts in the supply curve
In general the supply curve will shift due to the following factors:
 Costs of production: higher costs of production will decrease supply as there is less
incentive to supply in that market due to lower profitability
 Indirect Taxes and Subsidies on a good: taxes will increase costs of production as they
need to be paid to the Government but subsidies reduce costs of production. Therefore
taxes will reduce supply and subsidies will increase supply.
 Technology & Productivity: better technology could improve productivity and reduce
costs of production and therefore increase supply.
 Supply of alternative goods the producer could make with the same resources
i.e. competitive supply. If producers can switch to producing a more profitable product they
may reduce the supply of their current product.
 Supply of goods actually produced at the same time (i.e. joint supply): some goods
will see a rise in supply if other goods are produced e.g. beef and leather
 The weather e.g. in agriculture the weather can determine the crop yield / the size of the
harvest. Therefore good weather may increase supply.
 Entry/exit of new firms into/out of the market: if more firms enter a market then the
market supply will increase and will decrease when firms leave the market.
 Producer cartels: this is when many firms/countries operate together and decide how
much to supply onto the market and hence determine price. The main example is OPEC for
oil. They can restrict world supply of oil and therefore lower supply & raise the oil price.
Shifts in the supply curve for wheat
Wheat is an agricultural product produced using mass production methods. It competes with other
forms of basic foods such as maize, rice, corn etc.
Suggest what the effect on the supply of wheat will be if…
A rise in the cost of fertilisers
There was an improvement in

farming technology (e.g. GM)
There was a poor growing season

due to climate change
A producer cartel of wheat farmers

limits wheat production
A sharp fall in the price of wheat
A tax imposed on wheat

production
50 new farms set-up producing

wheat
Illustrating Shifts in Supply
Using examples from the previous page, illustrate an increase and a decrease in supply:
Price
S1
Joint Supply and Competitive Supply
Joint Supply When an increase of supply of good X, means more is

automatically supplied of good Y
a
E.g. beef and leather
Competitive Supply When an increase in price of good X, leads to a contraction

in supply of good Y (producers reallocate their production
to good X)
a
E.g. maize and barley
? Point to Ponder Can you think of any two goods in joint supply or in competitive supply?
p
1
Supply Questions
 You need to be able to apply the basic theory of supply to a variety of markets.
SECTION A: Suggest what could have caused the changes in these markets.
1.
Market: Gold P S2
Change: S1
Explanation:
Decrease in supply
Q
2.
Market: Computers P S1
Change: S2
Explanation:
Increase in supply
3. Q
Market: Petrol
P
Change: S1
Explanation:
P2
Expansion in supply
P1
Q1 Q2 Q
SECTION B: Illustrate and explain the effect of the following changes on supply in
these markets
4.
P
Market: Wheat S1
Change: Poor Weather & Harvests of Wheat
Explanation:
5.
Market: Diamonds P
S1
Change: Decreased price of diamonds
(due to lower demand)
Explanation:
6.
Market: Owner-occupied housing P

S1
Change: Major home building programme
Explanation:
7.
P
Market: Alcohol S1
Change: Increased tax on alcohol
Explanation:
8.
Market: Hydrogen Cars P

S1
Change: Entry of new firms in the market
due to new Government subsidies
Explanation:
9.
P
S1
Market: MP3 players
Change: Better production technology
Explanation:
10.
P
Market: Leather S1
Change: Increased supply of cows
Explanation:
Q
11.
Market: Oil P
S1
Change: Restrictions in supply by oil cartel
Explanation:
Q
12.
Market: Shares for Sainsbury’s P

S1
Change: Sainsbury’s shareholders worry the
share price will fall due to poor results
Explanation:
p
1
Demand & Supply: Equilibrium
Market Equilibrium The price and quantity when demand equals supply
Having looked at demand and supply we can now determine what the equilibrium quantity
and price will be in a market. The equilibrium price is called the market clearing price:
the price at which there is neither excess demand nor excess supply. This is simply where
demand = supply, as illustrated below:
NB. We are assuming we are in a free market
As this is a free market it is producers and consumers who will determine the price and
quantity. Indeed, in the example we are about to look at it will be market forces will
ensure that the price tends towards the equilibrium, there is no need for Government
intervention. Only if the market fails to do this would a Government intervene (e.g. for
goods which no one would be willing to purchase like street lighting).
Why is this equilibrium? Market Stall Example…
DAY 1: Set price at 10p for apples for the day
“During this day the apples flew off the shelf, we were sold out before lunchtime and
people were coming back later in the day having heard of the great offer!”
Illustrate the outcome on a demand and supply diagram:
DAY 2: Set price at £1 for apples for the day
“Well the next day I thought I should increase my price as there was so much demand and
I set the price at £1 an apple. Maybe I was a little greedy but I didn’t expect to end up with
a load of unsold fruit at the end of the day”
DAY 3: Set price at 30p for apples for the day
“This was my best day of the three, 30p seemed an ideal price and I just sold my last
apple at the end of the day.”
Activity: why is “Demand = Supply” equilibrium?
a) Why would price fall if it were above equilibrium?

b) Why would price rise if it were below equilibrium?
Complete your answer below using the terms excess demand and excess supply
p
1
Changes in D & S
Activity
Illustrate the impact on the equilibrium price and quantity of apples of the following
changes.
a) A switch in consumer tastes for apples, as people try to become healthier & get 5-
a-day
b) A fall in price of other fruits
c) Entry of more apple producers into the market
d) A fall in the crop yield of apples
A Final Example
“Slight increase in productivity in diamond extraction and a significant switch in tastes

towards diamonds caused by advertising”
Illustrate this below:

TIP: A shift in
either curve will
always cause a
movement along
the other curve.
Key Points
 Initial equilibrium will be where D = S
 Increase in supply caused by increased productivity. This causes a shift in the

supply curve to the right and a movement along the demand curve (i.e. an
expansion in demand)
 Increase in demand caused by advertising (not the price fall) will shift demand to
the right and a movement along the supply curve (i.e. an expansion in supply).
 New equilibrium is where D1 = S1
Evaluation: what will happen to price and quantity?
The impact on equilibrium price and quantity depends on the strength of each factor (i.e.
how much each curve shifts), as well as the shape / elasticity of each curve.
p
1
Functions of the Price Mechanism
The Price Mechanism Where the free markets allocate resources through the
interaction of demand and supply
1. Signalling, Incentive and Rationing Functions

The price mechanism operates in the free market and has several functions. Prices in a free
market can help solve the economic problem and allocate scarce resources by answering the
questions: what, how and for whom.
SIGNAL INCENTIVE RATIONING

 Change in what  Change in price  Who buys is
goods are preferred influences how determined by who
 Demand & price much is produced wants it and if
changes consumers can
 Buyers & sellers afford the price
observe this price
a) The Signalling Function
Firstly, prices perform a signalling function. This means that market prices will adjust to
demonstrate where resources are required, and where they are not i.e. helps society decide what
should be produced and consumed.
 Signalling Consumer Demand: if market prices are rising because of high and rising demand
from consumers, this is a signal to suppliers to expand their production to meet the higher
demand. Through the signalling function, consumers are able through their expression of
preferences to send important information to producers about the changing nature of our needs
and wants.
 Signalling Availability to Consumers: signalling also occurs with the supply curve. For
example, if market prices fall due to advances in technology and higher supply (such as for
digital cameras) then this is signalled to consumers with lower prices and they will respond by
expanding their demand.
b) The Incentive Function
Producers and consumers in the examples above have responded to the incentives provided by a
change in price. Here the market is decided how much should be produced and consumed in the
free market i.e. allocating resources.
 Incentives for producers: suppliers have the incentive to produce more when demand is high
as they will make more profit.
 Incentives for consumers: consumers have more incentive to consume goods after supply
increases (e.g. due to higher productivity) as the price will be lower.
c) The Rationing Function
Prices can ration resources as well. The market here answered the question for whom the goods
should be provided.
 Rations Demand: when demand increases there will be a shortage of a good or service, only
those who are able and willing to pay the higher price will be able to afford them.
 Rations Supply: prices can also help ration the supply of a good. For example, when a non-
renewable resource is running out, the supply will fall and price will rise causing demand to
contract. Again, only those with a high willingness and ability to pay can obtain the good.
Example of the Price Mechanism: UK Broadband
In a free market goods and services are allocated by demand (consumers) and supply (producers).
In this example we see how resources are reallocated when consumers increase their demand for
broadband.
1. If there is an increase in consumer demand for Broadband Internet, then this will signal to
producers that Broadband is a profitable market.
2. There is therefore an expansion in supply to take advantage of this incentive
3. The new higher price rations who buys Broadband.
These can be illustrated on the diagram below:
Example of the Price Mechanism: World Oil Supply
This time we are going to see the functions of the price mechanism responding to a change in
supply i.e. world oil supplies depleting.
1. If there is a decrease in the world oil supply then the oil price will rise. This higher price will
signal to consumers that consuming oil is less desirable due to the high cost.
2. There is therefore a contraction in demand as there is an incentive for consumers to switch to

renewable energy sources or reduce oil consumption (e.g. switching to public transport).
3. The amount of oil used has been rationed and will help to stop the decline in oil supplies. Only
those with higher incomes will be able to continue purchasing oil on a large scale.
These can be illustrated on the diagram below:
Point to Ponder: The Power of the Price Mechanism
“What if [all] markets were perfectly competitive? … Every product would be linked to every other product through
an ultra-complex network of prices, so when something changes somewhere in the economy (there’s a frost in
Brazil, or a craze for iPods in the US) everything else would change – maybe imperceptibly, maybe a lot – to
adjust.
A frost in Brazil, for example, would damage the coffee crop and reduce the worldwide supply of coffee; this would
increase the price coffee roasters have to pay to a level that discourages enough coffee drinking to offset the
shortfall. Demand for alternative products, like tea, would rise a little, encouraging higher tea prices and extra
supply of tea. Demand for complementary products like coffee creamer would fall a little. In Kenya, coffee farmers
would enjoy bumper profits and would invest in improvements like aluminium roofing for their houses, the price of
aluminium would rise and so some farmers would wait before buying. That means demand for bank accounts and
safety deposit boxes would rise, although for unfortunate farmers in Brazil with their failed crops, the opposite may
be happening.
The free market supercomputer processes the truth about demands and about costs, and gives people the
incentive to respond in astonishingly intricate ways.”
Source: The Undercover Economist, Tim Harford
2. Other Functions of the Price Mechanism
There are two other functions of the price mechanism which we have already covered during this
handout:
a) Entry & Exit of Firms
When we looked at the price mechanism we suggested that when demand increased for a product,
existing producers would increase their production and supply would expand. This is true in the
short-run, however in the long-run more producers would enter the market in search of increased
profit (assuming a competitive market with low barriers to entry).
Thus our Broadband example was not complete.
 Entry of Firms: if there is an increase in consumer demand for Broadband Internet, then this
will signal to producers that Broadband is a profitable market. There is therefore an expansion
in supply to take advantage of this incentive in the short-run. In the long-run more
producers may enter the industry to take advantage of the extra profit.
 Exit of Firms: the opposite argument is also true, if there was a decrease in demand for
broadband then in the long-run firms would exit and possibly enter new, more profitable
markets. Again, this analysis assumes that there are free, competitive markets. We will
consider imperfectly competitive markets in Unit 3.
b) Eliminating Surpluses and Shortages
As we saw when we studied market equilibrium, the price mechanism will allow the price to rise for
goods when there is a shortage (excess demand) and allow prices to fall when there is a surplus
(excess supply). This means prices will eliminate surpluses and shortages in a functioning free
market.
 Eliminating surpluses: if there is excess supply (i.e. supply is greater than demand) then the
price will fall. This will lead to a contraction in supply (as it is less profitable) and an expansion
in demand (as it is now cheaper to buy the goods). Both these forces will continue until
demand equals supply and equilibrium is reached.
 Eliminating shortages: if there is excess demand (i.e. demand is greater than supply) then
the price will rise. This will lead to a contraction in demand (as it is now more expensive) and
an expansion in supply (as it is now more profitable to produce). Both these forces will continue
until demand equals supply and equilibrium is reached.
Both these can be shown diagrammatically, for example in the diagram below price will need to fall
from 40p to 35p to eliminate excess supply or a surplus:
p
1
Consumer & Producer Surplus
We have analysed how the price mechanism can allocate resources through changes in demand
and supply. However, what is the impact of these changes on producers and consumers?
In order to answer this question we need to introduce the concepts of consumer surplus and
producer surplus.
What’s Consumer Surplus?
Consumer Surplus The difference between what consumers are willing and
able to pay for a good and what they actually pay.
Consumer
Surplus
P*
0 Q* Qd
In the diagram above, the demand curve shows the price consumers are willing and able to pay for
each unit and the equilibrium price is P*. Consumer surplus is therefore represented by the shaded
area under the demand curve but above the equilibrium price.
What’s Producer Surplus?
Producer Surplus The difference between the market price which firms
receive and the price at which they are willing and able to
supply.
P S
Producer
Surplus
P*
0 Q* Qs
In the diagram above, the supply curve shows how much of a good will be supplied at any given
price and P* is the equilibrium. Producer surplus is therefore represented by the shaded area
above the supply curve but below the equilibrium price.
Consumer & Producer Surplus: measures of welfare

Consumer surplus shows the extra satisfaction that consumers get if the price is at P*. Some
consumers valued the product at more than P* and have therefore ‘got a bargain’ – their welfare
has increased. The total level of consumer welfare equals consumer surplus.
Similarly, producer surplus shows the welfare of producers. According to the supply curve they
would be willing to accept a lower price than P*. The producers therefore get extra profit and their
welfare increases.
Changes in demand and supply
When demand and supply changes there are also changes in consumer and producer surplus.
Activity: Changes in Consumer and Producer Surplus
Analyse how producer and surplus change when:

a) Demand increases and decreases
b) Supply increases and decreases Use diagrams to illustrate your answer.
EXTENSION: how does the steepness of the curves affect your answer?
a
SUMMARY OF RESULTS
Effect on CS Effect on PS
Increase in Demand
Decrease in Demand
Increase in Supply
Decrease in Supply
SUPPORTED CHOICE QUESTIONS
1.
(1)
2. Which of the following would cause an increase in the price of tea without a shift
in the demand curve?
A. A fall in the price of coffee
B. A bad tea harvest
C. A rise in incomes in India and China
D. An increase in productivity by tea producers
(1)
3. Below are the estimated demand and supply schedules for a popular games console:
Price Original Demand Original Supply New Demand

(No. of consoles) (No. of consoles) (No. of consoles)
£400 1.5 million 3.75 million
£350 2 million 3.5 million
£250 3 million 3 million
Following a successful launch in China they expect to see an increase in demand of

1.5 million at any given price. Which of the following is true after the change in
demand?
A. There is less incentive for new firms to enter the games console market
B. The equilibrium price has risen to £350
C. There will be excess supply at the old equilibrium price
D. Total revenue has fallen
(1)
4. Which of the following is true in a free market economy?
A. Surpluses can be eliminated by allowing the price of a good to rise
B. Excess demand can be eliminated by allowing the price of a good to fall
C. A higher price can lead to more firms entering a market
D. The price mechanism signals changes in Government spending decisions
(1)
5.
(1)
6.
(1)
7.
(1)
8. Which of the following will lead to a rise in consumer surplus for the Economist
magazine?
A. An improvement in printing technology
B. A rise in demand for the Financial Times
C. A rise in salaries for writers at the Economist
D. A drop in the number of students taking Economics
(1)
DATA RESPONSE
1.
2.

1.2 Demand and Supply Workbook

Diunggah oleh

Informasi Dokumen

Hak Cipta

Format Tersedia

Bagikan dokumen Ini

Bagikan atau Tanam Dokumen

Opsi Berbagi

Apakah menurut Anda dokumen ini bermanfaat?

Apakah konten ini tidak pantas?

Hak Cipta:

Format Tersedia

1.2 Demand and Supply Workbook

Diunggah oleh

Hak Cipta:

Format Tersedia

The Demand

and Supply Model

o The Demand Curve

Demand for Hot Chocolate

Price Quantity Demanded

2|The Demand & Supply Model

2. What would happen to quantity demanded if:

a) Price fell to 50p

3. Suggest what would happen to demand if…

a) The income of the class increased by £100

b) Another similar hot chocolate was available at a price of £2

Demand The amount of a good or service that consumers are

Demand and Utility

What product or service gives you the most utility?

4|The Demand & Supply Model

The demand schedule for DVDs for 2012

Here is the demand curve for DVDs in 2012

“There is normally an inverse (negative) relationship between price and quantity

5|The Demand & Supply Model

Demand before Demand now

Illustrate these changes on the demand curve below:

In general factors that affect demand are:

Suggest what effect on DVD demand would the following have?

Fall in price of HD-DVD and Blu-ray

Fall in price of DVD players

Change in consumer tastes

Change in legislation declaring

Increased number of people

Increase in people’s income in the

Increased advertising for DVD

Illustrate one of these changes on the demand curve below:

7|The Demand & Supply Model

Joint Demand When an increase in demand for good X, causes

E.g. complements such as dishwasher tablets and

E.g. substitutes such as Channel 4 and BBC

E.g. Vaseline and crude oil, if there is consumer demand

Market: Owner-occupied housing P

Market: Labour Market (Builders) P

Market: Nintendo Wi Game P

Market: Shares for Sainsbury’s P

Market: Child seats for cars P

Would you sell your mobile phone?

Individual Predicted Class Class

The Supply Curve for Wheat

From this we can construct a supply curve:

Movements along the supply curve

Supply before Supply now

Shifts in the supply curve for wheat

Suggest what the effect on the supply of wheat will be if…

A rise in the cost of fertilisers

There was an improvement in

There was a poor growing season

A producer cartel of wheat farmers

A sharp fall in the price of wheat

A tax imposed on wheat

50 new farms set-up producing

Joint Supply and Competitive Supply

Joint Supply When an increase of supply of good X, means more is

E.g. beef and leather

Competitive Supply When an increase in price of good X, leads to a contraction

E.g. maize and barley

Market: Owner-occupied housing P

Market: Hydrogen Cars P

Market: Shares for Sainsbury’s P