The most significant theoretical contribution of economics? The market mechanism The most significant theoretical contribution of economics?

What is a market? Any where that buyers and sellers meet to trade

Why is the price of a bun 30p

How many would you buy? Price My demand Class demand If Jessie J buys them Income rise 2p 50p 100p

Plot the class graph

Extensions, contractions or shifts?

Factors affecting demand Price affects demand because….. extension and contraction ON the curve Income affects demand because….. – inferior and normal (SHIFT) Prices of other goods affects demand because….. Complements and substitutes(SHIFT) Fashion, publicity and tastes affect demand because…. (SHIFT) Advertising and promotion affects demand because….. (SHIFT) Other factors – population affects demand because….. weather affects demand because….. Etc (SHIFT)

How many would you sell? If each bun costs 9p to make Price My factory would try to sell All factories sales If a new machine reduces costs to 2p per bun Flour becomes scarce so costs rise to 51p per bun 2p 50p 100p

Plot the all factory graph

Contraction, extension or shift?

Factors affecting supply Price affects supply because….. ON THE CURVE Technology affects supply because….. (SHIFT) Factor costs affect supply because….. (SHIFT) Taxes and subsidies affects supply because….. (SHIFT) The supply of other products affects supply because….. Joint supply (SHIFT) The number of suppliers affects supply because….. (SHIFT) A firms objectives affects supply because….. (SHIFT) Expectation about future prices affects supply because….. (SHIFT)

The market mechanism

Changing equilibrium Do you move D or S? Draw a sketch graph to show the change then explain what happens to equilibrium if: A new faster oven is invented Paninis are more fashionable than buns Wages increase in the baking industry VAT falls on buns* Incomes fall in the UK* On a mini whiteboard- create a demand and supply of your own – show the change in the market for your product

Consumer and Producer Surplus

Indirect tax on a product targets the producer The new output of 100 would have been supplied for 15p so graphically producer pays 15p,c,b,30p Mathematically 30-15=15x100 = 1500p So producer pays …. The consumer pays extra 15p so graphically 45p,a,b,30p or mathematically 45-30=15x100 = 1500p Government gets 45p,a,c,15 or 30px100=3000p or £30

A subsidy is a payment by government to producers to support higher output Equilibrium price drops to 15p and now 340 are sold. But for the producer 340 output would require a price of 45p not 15p So producer receives 45p,a,b,30p or 15px340=5100p Consumer receives 15p,c,b,30p Or 15px340=5100p Govt pays 45p,a,c,15p Or 30px340=10,200p Or £102

Changing equilibrium 2 The market for Lotto if the health lottery offers bigger prizes The market for iphone as the UK emerges from recession The market for leather if beef prices fall The market for discount supermarkets as incomes rise The market for Spanish holidays if the pound is weak against the Euro High street stores open online stores to reduce overhead costs Substitutes- Lotto demand shift left price and quantity fall supply contracts Normal good - Demand shifts right price and quantity increase supply extends Joint supply beef supply shifts left, leather supply shifts left too . Price rises and quantity falls demand contracts Inferior good – demand shifts left prices and quantities fall Weak pound means UK travellers get few euros in exchange so Spanish holidays cost more pounds shifting demand left Supply shifts right price falls and quantity rises, demand extends

MCQ- don’t be fooled they are tough!

Answer - B A –Decrease in complement price would shift d Left C – An increase in subsidy would shift S right D decrease in wage would shift supply right

Answer - D A – would affect s B – would shift d left C- would affect s

Answer - B A – Would shift S to left C – would mean demand was elastic and its inelastic – (16% change in d/20%change in P – PED = -0.8) D would mean shift in D as lamb is a substitute

Answers 12 is A B refers to income elast C would be zero D have positive cross elast 13 is D A affects d B Supply shifts left C supply shifts left

Question 7 12 marker! What must you include?