Supply and Demand How do markets allocate scarce resources? what determines demand? What determines supply?

What will you give me in return....? I have only ONE bag of sweets I’ll give them to the highest bidder How did I decide who to give the sweets to? If I had 10 bags of sweets how much would you have offered me? If sweets were banned in the US how much would you have offered me? If you could get free sweets in the cafeteria how much would you have offered me?

Allocation of resources answer the questions that follow each scenario parents are being told by doctors that 3 bags of candy is the recommended daily allowance to keep your children happy Q. What happens to the amount of candy consumers are willing to demand, and the price of candy?

Chocolate has become very cheap in comparison to candy Scenario 2 Chocolate has become very cheap in comparison to candy Scenario 3 There is a major recession and low income families experience a rise in income taxes Q. What happens to the amount consumers are willing to demand, and the price of candy?

How can we show this on a diagram? Plot: Price on the y axis Quantity on the x axis A demand curve Describe: What the graph is showing you. What happens to D if price increases from $10 to $30? What happens to D if price falls from $40 to $20 Show on the graph: What would happen to D if people experienced a 50% increase in wages? What would happen to D for candy if chocolate became incredibly expensive in comparison? What happens to D if doctors recommended candy as a cure for the common cold? What happens to D if manufacturers invest in a marketing campaign advertising candy? price Quantity Demanded $5 75 $10 70 $15 65 $20 60 $25 55 $30 50 $35 45 $40 40 $45 35 $50 30

SUPPLY Scenario 4 Sugar cane farmers have had several bad years and crops are very low Scenario 5 Candy factory workers have won a union strike to increase their wages by 50% Scenario 6 The government offer tax cuts to confectionary businesses Q. What happens to the amount sweet manufacturers are willing to supply, and the price of candy?

.........and Supply Plot: Price on the y axis Quantity on the x axis A Supply curve Describe: What the graph is showing you. What happens to S if price increases from $10 to $30? What happens to S if price falls from $40 to $20 Show on the graph: What would happen to S if the price of sugar increased? What would happen to S of candy if demand for chocolate grew rapidly in comparison? What happens to S if sweet manufacturers are offered grants? What happens to S if manufacturers are taxed an ‘unhealthy tax’? PRICE SUPPLY $5 30 $10 35 $15 40 $20 45 $25 50 $30 55 $35 60 $40 65 $45 70 $50 75

Before you go........key words! Demand shows how willing or able a ________ is to buy a particular good at different prices. Supply shows how ________ or able a firm is to produce / manufacture a commodity at different __________. If prices are _________ consumers are ______ likely to demand a commodity. If prices are _________ producers are ______ likely to supply a commodity.

starter How does Nina decide how many pairs of new shoes to buy each month? How do you decide how many songs to download every week? How do your parents decide how many vacations to go on every year? How do you decide how many pairs of clothes to buy every month?

Demand and Supply.....again Price is a flag! HIGHER PRICES High prices act as a SIGNAL to consumers and producers. Q. What signal does an increase in price send to both consumers and producers?

Demand and Supply.....again Price is a flag! LOWER PRICES High prices act as a SIGNAL to consumers and producers. Q. What signal does a fall in price send to both consumers and producers?

How do prices allocate scarce resources? Think about the following scenario and consider the questions: It’s summer time in New York 2012 and there is a heat wave. Huge numbers of people, tourists and visitors want a refreshing drink. Newsagents, supermarkets and vendors cannot keep up with demand and their fridges and shelves are empty within an hour of opening the shop. How could the retailers capitalize on this situation? What might unemployed locals do to capitalize on this? What happens to the demand curve? What impact has the ‘excess’ demand had on price? How have the resources (drinks) been allocated? Is this a ‘fair’ distribution of resources?

How do prices allocate abundant resources? Think about the following scenario and consider the questions: Across the world dairy farmers are over producing milk, farming techniques have become more efficient and simultaneously an announcement is made on the news that drinking milk may be the cause of a new super-bug. Retailers have mountains of milk cartons piled in stock rooms, farmers have milk churns full and lorry loads waiting for orders. What do the farmers do in order to get rid of excess milk? How much do retailers offer farmers in return for milk? What happens to the price of milk for consumers? Show the impact of this on a diagram

Now consumer surplus What happens to the consumers who were willing to demand at a price higher than equilibrium?

....and producer surplus What happens to the businesses that were willing to supply at a price lower than equilibrium?

Assessment Using a demand and supply diagram, comment on the extent to which changes in the global demand and supply of food may have affected the market equilibrium. [6] State and explain two reasons for increased global demand for food products;[4] State and explain two reasons for a fall in the global supply of food products. [4]