Embed Size (px)
Citation preview
Starter
• Log on• Sit at a desk• Give me any homework
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
decreasesPrice 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 price2. Increase in minimum wage3. Increase in orders4. Increase in productivity5. Increase in VAT rate6. Decrease in inflation7. Introduction of robots8. Introduction of new labour laws
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
Guidance from Edexcel
Guidance from Edexcel
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. IncreaseB. 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
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
priceCosts 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
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 - DiagramS
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
Q1Q2
P1
P2
S2
Sample question 3
8 Marks
Case study on next slide
5 marks for diagram
Answer question 3
Answer Q3 - DiagramS
D1
D2
Q
P
Q1Q2
P1
P2
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 29-39 and take notes. Bring these notes to class.
