Transcript Demand
DEMAND Movements and Shifts Objectives To understand the price mechanism To know what ceteris paribus means To know what demand is To know how to plot a demand curve To know what a movement along the curve is To know what a shift in demand is To know what causes a shift in demand The Invisible Hand Adam Smith – one of the first economists wrote about ‘The invisible hand of the price mechanism’ What did he think? That scarce resources would be allocated most efficiently by people pursuing their own selfinterests Those who could afford to pay would have and those who could not would go without The market would reach an equilibrium point where the amount of a good or service demanded at a given price would exactly equal the amount supplied An example The price per chocolate bar Price Demand 0 200 10p 160 20p 120 30p 80 40p 40 50p 0 What happens to demand when the price falls to 20p The number of chocolate bars demanded at each price How many chocolate bars are demanded when the price is 40p? What is the law of demand? Write a sentence to describe what you would expect to happen to demand if the price were to increase The law of demand states that there is an inverse relationship between quantity demanded and the price of a good or service, ceteris paribus Ceteris paribus? Latin for – ‘all things being equal’ Therefore: If the price of a good goes up and ceteris paribus (everything else stays the same) the demand for the good will stay the same Remember this Price Demand 0 200 10p 160 20p 120 30p 80 40p 40 50p 0 The Demand curve Price Write a sentence to describe the demand curve 50 X 40 A change in price causes A MOVEMENT ALONG THE DEMAND CURVE X 30 X 20 X 10 0 X 50 100 150 X 200 output A shift in demand If PRICE changes there will be A MOVEMENT ALONG THE DEMAND CURVE If ANYTHING else changes there will be a SHIFT in the demand curve What causes a shift in demand? Changes in Income Price of other goods (substitutes and complementary) Fashion Advertising Weather Demographics What does a shift look like? Demand has shifted from D to D1. Write a sentence to say what has happened to quantity demanded at a price of 30p Price D2 50 Draw a third line to show demand shifting outwards. Label it D2 D 40 30 20 10 0 D1 50 100 150 200 Explain what has happened to quantity demanded – ceteris paribus Look at the following situations On your homework piece of paper, copy these down and say if there would be a shift or a movement – give a reason for your choice Demand for umbrellas if heavy rain is forecast Demand for butter if the price of margarine goes up Demand for I-Phones if the price falls Demand for Cinnamon Toast Crunch following a successful advertising campaign Demand for disposable diapers when the population is rising Homework Draw a demand graph for each situation in the slide above – there will be 5 graphs in total Write two or three sentences about each one to explain what has happened