Theme 1: Introduction to markets and market failure.

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Presentation transcript:

Theme 1: Introduction to markets and market failure

Supply: The amount of products/services that are supplied onto the market i.e. produced So the amount of a product to a particular market will increase as the price increases. Why? Existing suppliers will increase their supply because they see the chance of extra profit Other entrepreneurs are attracted to the market by the increased price and therefore increased profit.

Supply 3 You should now be able to apply what you have learnt about demand to movements and shifts of the supply curve. Task: Which diagram shows a movement and which shows a shift in supply? Explain what is meant by a movement along the supply curve and a shift of the supply curve. Extension: Can you think of any factors which could cause the supply of a product to change when the price remains unchanged?

The Supply Curve (for most products) Quantity Price Remember: Label your axis Title Label line S P Q P1P1 Q1

What factors might affect the supply for a product or service? Price Improvements in technology Prices of raw materials and other costs of production e.g. wage costs Climate (for agricultural products). Which do you think cause a movement or a shift?

Summary exercise 6 In each of the scenarios below, you need to decide: if supply or demand is affected if there is movement along or a shift of the curve the direction of the movement (extension/contraction) or shift (increase/decrease) 1Market: Frozen pizzas Event:An increase in the price of frozen pizzas due to an increase in demand Answer:A movement (extension) of the supply curve. 2Market: Holidays to Majorca Event:There is a serious outbreak of food poisoning at a resort in Florida. Answer:A shift (increase) of the demand curve. 3Market: Tablet computers Event:Suppliers drastically cut the price of tablets due to their costs of production falling. Answer:A movement (extension) of the demand curve. 4Market: Alcohol Event:The government decides to increase the tax charged on alcohol. Answer:A shift (decrease) of the supply curve.