Grade 9 EMS Demand and Supply

Transcription

1 Grade 9 EMS Demand and Supply Name: Class Teach a parrot the terms "supply and demand" and you've got an economist. - Thomas Carlyle Demand and Supply booklet 2014

2 Shifts Vs. Movements In Demand and Supply Law of demand and supply: A low price will result in a high demand, and vice versa, A high price will result in a high Supply, and vice versa. Price Theory: Price theory studies how prices are determined through the interaction of DEMAND (how badly consumers want an item) and SUPPLY (how much of that item is available). In this section we will focus on demand and supply separately and then look at how they interact together to form a price. DEMAND Demand: This refers to how much (quantity) consumers are willing and able to buy. The factors that influence demand: 1. Price: The relationship between price and the quantity demanded is seen in the Law of Demand. At higher prices, less is demanded and at lower prices more is demanded. 2. Other factors: How much money the consumers have (Income). Consumer buying patterns influenced by factors such as weather, fashion and advertising. The availability and price of other products. These are divided into two categories: Substitute products and Complementary product. 1

3 Substitutes and complementary products: A substitute is a product that fulfills the same need as another product. Can you think of some examples? 1. Coffee Tea Butter Margarine Rice Pasta Coke Fruit Juice Economic Impact: If the price of a product with a substitute increases then: The demand for the substitute will increase even though there has been no change in its price. If the price of a product with a substitute decreases then: The demand for the substitute will decrease, even though there has been no change in its price. A complementary product is a product that is always used in conjunction with another product. Can you think of some examples? 1. Razor Blades 6. Pen Tippex 2. Cup Saucer 7. Pencil Eraser 3. Shoes Socks Bread Butter PC Windows 10 Economic Impact: If the price of a product with a complement increases then: The demand for the compliment will decrease even though there has been no change in its price. If the price of a product with a complement decreases then: The demand for the compliment will increase, even though there has been no change in its price. 2

4 A movement on a demand or supply curve refers to a change in the quantity demanded or supplied with a change in the price of the product. P ric e R100 R90 R80 R70 R60 R50 R40 R30 R20 R QUANTITY DEMANDED Price in Rand Quantity demanded R10 60 R20 55 R30 50 R40 45 R50 40 R60 35 R70 30 R80 25 R90 20 R Assume the price is R50 per unit, how many units would be demanded? Draw this point on the graph. If the price changes to R80 per unit, how many units are now demanded? Draw this new point on the graph. This change in quantity demanded represents a movement on the demand curve. NB. The curve remains the same! The information supplied for demand and supply is for a specific market, it tells us about a market s demand for a particular product. This is based on a number of factors, which include: how many people are in this market, how much money they have to spend, and what their current taste or preference is. This change in quantity demanded represents a movement on the demand curve. NB. The curve remains the same! In the above movements, what is the only variable mentioned? Price With regard to demand, what else could change that would affect demand? The number of people The income or available money of the market Tastes or preference of the market The availability of a similar product 3

5 Activity 6.2 (page 97) 2a b c d e 3a Activity 6.3 (page 98) 2a b c d 3a b 4

6 PRICE Shifts in demand: A shift in demand takes place when demand either increases or decreases without a change in price. This takes place for the following reasons: Changes in income levels Seasonal changes Fashions Price of other products An increase in demand: Demand Schedule Price Original demand Increased demand R5 60 units 80 units R10 50 units 70 units R15 40 units 60 units R20 30 units 50 units R25 20 units 40 units R30 10 units 30 untis D 1 D 2 The demand schedule above shows an increase in demand at various price levels. At R5 60 units were demanded, now due to changes, 80 units are demanded at a price of R5. At each price level there is a new increased demand D 1 D 2 Due to the changes seen on the demand schedule, a new demand curve (D 2 ) can be drawn. The changes can be seen in the shift from D 1 to D 2. QUANTITY 5

7 PRICE A decrease in demand: Demand Schedule Price Original demand Decreased demand R5 80 units 70 units R10 70 units 60 units R15 60 units 50 units R20 50 units 40 units R25 40 units 30 units R30 30 units 20 units 40 D D 2 The demand schedule above shows a decrease in demand at various price levels. At R5 80 units were demanded, now due to changes, 60 units are demanded at a price of R5. At each price level there is a new decreased demand D 2 D Due to the changes seen on the demand schedule, a new demand curve (D 2 ) can be drawn. The changes can be seen in the shift from D 1 to D 2. QUANTITY Factors that can change demand: 1. Price this is the obvious one (but besides this) 2. Change in personal income 3. Change in fashion 4. Existence of a substitute product (NB!!) 5. Improved advertising 6. Advances in technology 7. Changes in the weather (eg umbrellas in winter) 8. Changes in the price of a complimentary product 6

8 SUPPLY Supply: This refers to how much (quantity) suppliers are willing and able to supply to the market. The factors that influence supply: 1. Price: The relationship between price and the quantity supplied is seen in the Law of Supply. At higher prices, more is supplied and at lower prices less is supplied. 2. Other factors: The cost of production (If costs drop, supply will increase). Improvements in technology and production methods (If technology improves, supply will increase). The number of other suppliers in the market (more producers means increased supply). The Law of Supply The law of supply states that if the price of a product increases, the supply of that product will increase. Conversely, if the price of a product decreases, the supply of that product will decrease. 7

9 PRICE The same is true for supply! P ric e R100 R90 R80 R70 R60 R50 R40 R30 R20 R QUANTITY Supplied Price in Rand Quantity Supplied R10 15 R20 20 R30 25 R40 30 R50 35 R60 40 R70 45 R80 50 R90 55 R Assume the price is R50 per unit: How many units would businesses be prepared to supply? Show this on the supply curve. If the price of the product were to increase to R80 per unit, how many units would suppliers be prepared to supply now? Show this point on the graph. Activity 6.4 (page 102) 2d QUANTITY 8

10 PRICE Shifts in supply: A shift in supply takes place when supply either increases or decreases without a change in price. This takes place for the following reasons: A change in the cost of producing the item. o As a result of a change in the price of inputs, o Or a change in the price of production technology. A change in the number of suppliers in the market. A change in the price of an alternative product. An increase in supply Caused by: A decrease in the cost of production More suppliers in the market Supply Schedule Price Original supply Increased supply R5 10 units 30 units R10 20 units 40 units R15 30 units 50 units R20 40 units 60 units R25 50 units 70 units R30 60 units 80 units S 1 S S 1 S The supply schedule above shows an increase in supply at various price levels. At R5 10 units were supplied, now due to changes, 30 units are supplied at a price of R5. At each price level there is a new increased supply. Due to the changes seen on the supply schedule, a new supply curve (S 2 ) can be drawn. The changes can be seen in the shift from S 1 to S 2. QUANTITY 9

11 PRICE A decrease in supply: Caused by: An increase in the cost of production Fewer suppliers in the market Supply Schedule Price Original supply Decreased supply R5 30 units 20 units R10 40 units 30 units R15 50 units 40 units R20 60 units 50 units R25 70 units 60 units R30 80 units 70 units S 2 S 1 The supply schedule above shows a decrease in supply at various price levels. At R5 30 units were supplied, now due to changes, 20 units are supplied at a price of R5. At each price level there is a new decreased supply S 2 S Due to the changes seen on the supply schedule, a new supply curve (S 2 ) can be drawn. The changes can be seen in the shift from S 1 to S 2. QUANTITY 10

12 Market Equilibrium: Study the graph and answer the questions that follow: 1. At R2 how many units are demanded? 2. At R2 how many units are supplied? 3. Does this mean that everyone can get a unit? 4. At R4, how many units are demanded? 5. At R4, how many units are supplied? 6. Are all units sold? Surplus: If there is a surplus of products in the market, the suppliers will drop the price of the product until all products are sold. Shortage: If there is a shortage of products, the price of the product will rise, as consumers compete to buy the product. As the price rises, so demand for the product drops. 11

13 Market Equilibrium is found: In this way, the price and quantity supplied and demanded go up and down until equilibrium is found where Demand meets Supply. 12

14 Activity 6.6 (page 104) Choose the correct answer between brackets: 1a. The market equilibtium price of radios is (R30, R50, R60) b. When the price is R70 there is an excess (supply/demand) of radios this leades to a (surplus/shortage). This will cause producers to (increase/decrease) their prices. c. When the price is R30 there is an excess (supply/demand) of radios this leades to a (surplus/shortage). This will cause producers to (increase/decrease) their prices. 13