3. Task: investigating marketsTask: investigating markets
In groups of three, you are going to investigate a range
of markets to try to come up with reasons which might
explain changes in market prices.
In each case you should:
• describe how the market price is changing over time;
• conduct some research into the market using the
internet;
• suggest reasons for the price changes you have
described;
• present your findings to the rest of the class.
4. Conclusions from investigatingConclusions from investigating
markets taskmarkets task
Prices are determined by the
interaction of the forces of
demand and supply.
Prices are determined by the
interaction of the forces of
demand and supply.
If there is too much demand
relative to supply, prices will
tend to rise.
If there is too much demand
relative to supply, prices will
tend to rise.
5. If there is too much demand
relative to supply, prices will
tend to rise.
If there is too much demand
relative to supply, prices will
tend to rise.
6. If there is insufficient
demand relative to supply,
prices will tend to fall.
If there is insufficient
demand relative to supply,
prices will tend to fall.
7. DefinitionsDefinitions
Demand
the amount consumers are willing
and able to buy at different prices
in a given time period
Demand
the amount consumers are willing
and able to buy at different prices
in a given time period
Supply
the amount producers are willing
and able to offer for sale at
different prices in a given time
period
Supply
the amount producers are willing
and able to offer for sale at
different prices in a given time
period
8. Demand curves – Stage 1Demand curves – Stage 1
You have a maximum of
£2.50 to spend and can
buy any of the products
below, in any
combination.
You can buy any number
of one product and do
not have to buy all the
products. You must spend
all of your income.
When you have made
your decisions, fill in the
table on the worksheet.
50p 50p
50p 50p
9. Demand curves – Stage 2Demand curves – Stage 2
Now assume that it is a
new day and you have
consumed all the food
you bought yesterday.
A global shortage of
peanuts has pushed the
price of a Snickers bar
up to £1
You still have £2.50 to
spend. Make your
decisions again.
£1 50p
50p 50p
Global peanut shortage
Untreated nuts to blame
10. Demand curves – Stage 3Demand curves – Stage 3
Work out the quantities demanded by the whole class
(the ‘market’) at each stage of the game and record
them in the table below.
Product Quantities – Stage 1
(Snickers = 50p)
Quantities – Stage 2
(Snickers = £1)
Snickers bar
Coke
Milk
Mars bar
11. 0
25
50
75
100
125
0 2 4 6 8 10 12 14 16 18 20 22 24 26 28 30
Quantity demanded
Price(pence)
The ‘law’ of demand
ceteris paribus, the lower the price
the higher the quantity demanded
The ‘law’ of demand
ceteris paribus, the lower the price
the higher the quantity demanded
12. Determinants of demandDeterminants of demand
We can conclude at this point that there is an
inverse relationship between price and quantity
demanded. But we need to remember that this
is based on the ceteris paribus assumption –
that is that all other things affecting demand
have not changed when price changes.
If they do, then there will be a movement
along the demand curve – there will either be
a contraction of demand as price rises or an
extension of demand as price falls.
13. Why the inverse relationship?Why the inverse relationship?
Income effect
when the price of a good falls consumers
can maintain current consumption for
less expenditure and use their higher
real income to buy more of the good
(‘normal’ good)
Income effect
when the price of a good falls consumers
can maintain current consumption for
less expenditure and use their higher
real income to buy more of the good
(‘normal’ good)
Substitution effect
when the price of a good falls the
product is now relatively cheaper than
alternatives so some consumers switch
their spending from the alternative
goods to this product
Substitution effect
when the price of a good falls the
product is now relatively cheaper than
alternatives so some consumers switch
their spending from the alternative
goods to this product
14. Determinants of demandDeterminants of demand
Demand curves SHIFT (left or
right) when there is a change in
Income
Price and availability of
substitutes
Price of complementary
goods / services
Population /
demographics /
household type
Tastes and preferences
Government policy /
legislation
Price (£)
Quantity
demanded
Demand
D1
D2
15. Use you textbooks to create a set of notes on the
theory of demand covered in lessons
Your notes should cover the following:
the major determinants of demand
the distinction between movement along a demand curve and
shifts of the demand curve
the distinction between individual and market demand curves
the concept of consumer surplus and its illustration using
demand curves
Try to make your notes visually memorable by using
colour and spacing. This topic lends itself well to a mind
map format
Homework 1Homework 1
16. Homework 2Homework 2
Choose two of the determinants of demand.
For each determinant write about an example of
a good or service where demand has changed as a
result of change in the determinant.
Use your own knowledge of trends in markets
you are familiar with to focus any internet
research you do.
Keep it short and don’t copy and paste from
websites – use your own words.
17. Homework 3Homework 3
Tackle Questions 1 and 2 of the Data Question
on p38 of your Anderton textbook.
Technique tips
Question 1 (5 marks)
- Compare the underlying / overall trend
- Point out exceptions to the underlying / overall trend
- Compare the % change over the whole period
- Compare the rates of change within the overall time period
Question 2 (5 x 5 marks)
- For each sub part there are diagram marks and explanation marks
- For the diagrams, there are no marks available unless each diagram is fully and
accurately labelled
- In each case there are 2 marks for the diagrams - 1 for the original position and 1
for the new position (or shift)
- There are 3 marks for explaining each diagram - simply say what you see and give a
valid reason for the changes you have represented.
Total marks = 30
18. Research task exampleResearch task example
The UK’s growing thirst for healthy eating and fears
about the longer term health effects of the consumption
of fast food has meant that the demand for smoothies
and other fresh fruit drinks has expanded rapidly in
recent years. Innocent, the leading brand in
supermarkets, estimates that the market could be worth
£170m in 2007. More and more retail outlets such as
Crussh are appearing on the high streets, and demand is
rising in school canteens and workplaces. Innocent has
seen its turnover expand to £37m in the past six years
and has over 50 per cent of the UK market. It sells 1m
smoothies a week, compared with 20 on its first day of
operation in 1999.
Source: Adapted from news reports, June 2006 and the Innocent web site
19. Consumer surplusConsumer surplus
When was the last time as a consumer that you
got a ‘bargain’?
A ‘bargain’ is when you pay a price less than the
price you would be willing to pay
In economics a ‘bargain’ is called consumer
surplus
Consumer surplus is a measure of the
difference between what a consumer is willing
to pay for a product and what they actually pay
(the market price)
21. Price and consumerPrice and consumer
surplussurplus
Price
Quantity
demanded
Demand
Market price
Consumer surplus
P
Q
P1
Q1
New consumer surplus
Change in consumer
surplus (reduction)
22. Investigation task 1Investigation task 1
Go to the Virgin Trains website (
www.virgintrains.co.uk)
Find out the different ticket categories and
prices for a one-way trip from Chester to
London on 22 November departing at 9am
How might what you have observed relate to
the concept of consumer surplus?
23. Follow up toFollow up to
investigation task 1investigation task 1Price
Sales
D=AR
Revenue = price (P)
x ticket sales (Q)P
Q
Additional revenue
from having 2
ticket categories
Additional revenue
from having 3
ticket categories
24. Investigation task 2Investigation task 2
Use the BBC website (www.bbc.co.uk) to find
out about the UK government’s auction of
licences to operate 3G mobile phone licences in
2000
Try to find information on
The number of firms bidding
The number of licences available
Start and finish bids
Total amount paid for the licences
How might what you have found out relate to
the concept of consumer surplus?
25. Follow up toFollow up to
investigation task 1investigation task 1
Demand
Quantity demanded
Selling all five licences at the same
price leads to revenue for the gov’t of
the yellow box and consumer surplus to
the telecommunications companies equal
to the blue triangle
By auctioning the licences
the gov’t hopes to sell each
to the highest bidder. This
potentially raises additional
revenue of the red shaded
rectangles
Price
