SECTION 1 MONEY Produce a mind-map on the topics covered so far Some key elements - Financial Capability (centre point) - Personal Lifecycle - Needs & wants - Choices, scarcity, opportunity cost - Costs & benefits Starter: Mind Mapping They are all interlinked

SECTION 1 MONEY Choosing to Spend Mr Tarn GCSE ECONOMICS: UNIT 11

SECTION 1 MONEY Aims of today’s lesson … Understand how markets operate and how businesses compete Understand the reasons why prices change. Understand the effects of competition between businesses on prices, products, quality

SECTION 1 MONEY Demand and factors that affect spending Demand is the quantity of all goods and services purchased at any given price Look at the demand schedule below for mars bars Using the graph paper plot the demand curve using a line graph with Price on the vertical Y axis and Quantity on the horizontal X axis PriceQuantity Demanded £ £ £ £ £ £ £

SECTION 1 MONEY Demand and factors that affect spending Describe the relationship between the price of mars bars and the quantity demand D D

SECTION 1 MONEY Demand and factors that affect spending So, as the price increases for a good, the quantity demanded will fall, and vice versa For example consumers will probably start using more gas as British Gas have dropped their prices by 10 per cent

SECTION 1 MONEY Over to you... Open and compete the document called... “Understanding the demand curve”

SECTION 1 MONEY How will your demand change over the personal life cycle? Needs, wants and incomes change significantly over a lifetime Initially, a person’s demand is likely to be more for basic household goods With a family, the demand will change to goods and services for the children Once children have left home, people may start to take more meals out or more expensive holidays as demands on income will be lower In retirement, incomes fall so people may need to cut back on expenditure

SECTION 1 MONEY What factors affect our demand for certain goods and services? There are many other factors affecting demand apart from price, however, that affect our spending decisions In pairs discuss what affects your demand for products and services List them on the back of your graph paper!

SECTION 1 MONEY What factors affect our demand for certain goods and services? There are many other factors affecting demand apart from price, however, that affect our spending decisions –income level – the most important –advertising and branding influence desire and loyalty for a product –prices of substitutes (similar goods) and complements (for example fuel is a complement of cars) –fashion and peoples’ tastes

SECTION 1 MONEY Market supply and prices Businesses produce goods and services for people to buy so that the business can make a profit The amount they offer for sale is called ‘supply’ Supply is the quantity of all goods and services firms are willing to produce at any given price

SECTION 1 MONEY Market Supply and prices Look at the supply schedule below for mars bars Using the same graph plot the supply curve PriceQuantity Supplied £ £ £ £ £ £ £

SECTION 1 MONEY Market Supply and prices Describe the relationship between the price of mars bars and the quantity demand Businesses tend to supply more, the higher the price The price they charge has to cover the costs of the resources used in production S S

SECTION 1 MONEY Market supply and prices Factors affecting supply and how much businesses charge include: – cost of raw materials – wage rates – overtime may need to be paid for higher output – productivity of the workers – The price of similar products – VAT (Value Added Tax)

SECTION 1 MONEY Over to you... Open and compete the document called... “Understanding the Supply Curve”

SECTION 1 MONEY Markets and why prices might change When buyers and sellers come together, a market is formed For very expensive items, like a house, the buyer and seller negotiate a selling price individually For most goods and services, however, the market price is determined by the amount buyers are willing to pay and the price that businesses need to be paid to cover their costs If a good does not sell well, suppliers have to lower their price. Eventually, the price will settle at a point where supply equals demand, known as the market price (the intersection of demand & supply on your graphs)

SECTION 1 MONEY Markets and why prices might change cont. Prices change when there are changes in demand or supply For example, when oil prices are rising, costs for all companies rise, as oil is needed for energy, transport and heating Businesses will have to raise their prices to cover increased production costs A serious health scare can cause a big fall in demand, and prices will have to fall to maintain sales

SECTION 1 MONEY The effects of competition Usually there is more than one supplier for each type of good, so businesses face competition They have to fight to win consumers from other businesses by: – advertising and branding (e.g. the Andrex puppy and toilet rolls) – improving quality – changing the design and features (e.g. frequent updates of mobile phones) – lowering the price by improving production methods (e.g. by being more energy efficient)

SECTION 1 MONEY The effects of competition Consumers can benefit greatly from competition through: – lower prices (e.g. price wars– supermarkets compete to provide better value) – greater variety (e.g. supermarkets stock value, branded and premium versions of the same good) – better quality (e.g. McDonald’s improved the quality of its coffee by buying better quality beans)

SECTION 1 MONEY The effects of competition There can also be disadvantages: – Quality can be lowered as businesses try to cut costs (e.g. some companies sell clothes and electrical goods that are cheaper now than they were 15 years ago, but do not last so long) – After-sales service can suffer if too many resources are put into sales

SECTION 1 MONEY Over to you... Open and compete the document called... “The effects of competition”

SECTION 1 MONEY Extension Tasks... 1.Start your Economics Glossary for key terms we have covered so far in the course (template is in the SSA) 2.Create 5 brainteaser questions from what we have covered so far which we will ask your peers (make sure you know the answers)