AS Economics and Business Unit 1 Changes in Price Examiner favourite topic! Appears on most papers…

Lesson Objectives To be able to discuss how changes in the conditions of demand and supply affect price and output To be able to answer past paper questions on the topic

You need a ruler and pencil for this lesson

Starter If we all want and demand a particular product (iphone 6?) will a business (Apple): A) Increase supply and increase price B) Decrease supply and decrease price C) Increase supply and decrease price Increase in demand is a profit signal so supply will increase and so will price to meet the market price Answer is A

A rise in demand – effect on price A rise in demand will SHIFT the demand curve to the right – prices rise

A fall in demand – effect on price A fall in demand will SHIFT the demand curve to the left, lots of surplus so prices will fall

Note A change in PRICE does not shift the curve There is a movement along the curve If there is a change in PRICE there is movement not shift

A rise in supply – effect on price A rise in supply will SHIFT the supply curve to the right, lots of surplus so prices fall

A fall in supply – effect on price A fall in supply will SHIFT the supply curve to the left and as goods are scarce prices will rise

Recap Falls in supply and demand shifts left Rises in supply and demand shifts right Changes in price causes movement along curves Make sure you have points 1-3 before moving on Leonardo is there to focus the points. They will remember the points because they will be able to recall his face. Pages of text are hard to recall but faces are easy. Allow discuss of his movies as it all helps to the remembering of the points. Now try the past paper questions.

Example The demand for Oakley sunglasses rises due to the hot weather…. Rise in demand – shift to right, Draw on Axis labels and Change from P1 to P2 and Q1 to Q2

Answer to example Price Supply p2 p1 D2 D1 Q2 Q1 Quantity

Sample question 1

Answer question 1 Correct answer is D – increase in demand • This will cause a movement along the demand curve (1 mark) and results in a rise in quantity demanded. (1 mark) • A change in price does not shift the demand curve. (1 mark) • A reduction in price will result in more Nintendos being sold as the price is cheaper. (1 mark). • The DSi is relatively expensive and might be classed as a luxury good. (1 mark) • A shift left in the demand indicates a reduction in demand not an increase due to demand factors such as income, fashion etc. not due to a change in price .(1 mark) • A shift right in the demand curve indicates an increase in demand due to demand factors such as income, fashion etc. not due to a change in price. (1 mark) • A fall in demand is more likely to occur when there has been an increase in price and therefore a decrease in quantity demanded (1 mark) • A diagram showing a movement along the demand curve (1 mark) • A contextualised diagram (DSi) showing a movement along the demand curve (2 marks)

Sample question 2 8 marks

Answer question 2 (Knowledge 3, Application 3, Analysis 2) Diagram: 5 marks Written Explanation: 3 marks Correct labelling of axes with P and Q (1 mark) Supply and demand curves drawn correctly (1 mark) Initial equilibrium shown (1 mark) Shift in demand curve to the right (1 mark) New equilibrium correctly shown (1 mark) Recognising shortage of accommodation and how this would affect both price and quantity – a rise in quantity demanded at a higher price. More able students may refer to the price elasticity of supply either in the diagram (show inelastic supply curve) or in their written explanation. Needs to have context - rental properties/rooms etc rather than just a description of what is happening in the diagram. NB: A total of 5 marks are available for the correct diagram NB: Answers lacking a diagram, maximum of 3 marks. Diagram on next slide

Diagram for question 2 You can draw the lines straight… recognise this?? This is the same diagram as drawn in slide 12

Revision Video

Revision Video 2