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

How much would you pay for?

How are goods allocated? In a mixed and market economy, goods and services are allocated using the PRICE MECHANISM. Buyers and sellers meet in a market place that can be: A MARKET A STOCK EXCHANGE A SHOP THE INTERNET

The invisible hand? Adam Smith – one of the first economists wrote about ‘The invisible hand of the price mechanism’ That scarce resources would be allocated most efficiently by people pursuing their own self-interests 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 This is the basis for the distribution of the vast majority of goods and services around the world TODAY!

What is demand? Demand is defined as: The quantity of a good or service that consumers are willing and able to purchase at each price level.

An example The number of chocolate bars demanded at each price The price per chocolate bar Price Demand 200 10p 160 20p 120 30p 80 40p 40 50p How many chocolate bars are demanded when the price is 40p? What happens to demand when price falls to 20p

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

Imagine The price of umbrellas falls The price of petrol rises What would happen to demand - ceteris paribus? What else COULD change to mean that demand would not change What would happen to demand - ceteris paribus? What else COULD change to mean that demand would not change

Make a note Price Demand 200 10p 160 20p 120 30p 80 40p 40 50p

Write a sentence to describe the movement along the demand curve. Price Write a sentence to describe the movement along the demand curve. 50 X 40 X 30 X 20 X 10 X X 50 100 150 200 Quantity demanded

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 Draw a third line to show demand shifting outwards. Label it D2 50 D 40 30 20 Explain what has happened to quantity demanded – ceteris paribus 10 D1 50 100 150 200

Look at the following situations Record the following 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 CDs if the price falls Demand for cornflakes following a successful advertising campaign Demand for disposable nappies when the population is rising

Activity Draw a demand graph for each situation in the slide above. Write two or three sentences about each one to explain what has happened