1. DEMAND Movements and Shifts

2. 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

3. How much would you pay for?

4. How are goods allocated?  In a mixed and market economy goods and services are allocated using the PRICE MECHANISM  The buyers and sellers meet in a market place  A market place can be  A MARKET  A STOCK EXCHANGE  A SHOP  THE INTERNET

5. The Invisible Hand  Adam Smith – one of the first economists wrote about ‘The invisible hand of the price mechanism’

6. What did he think?  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

7. Incredibly  This is the basis for the distribution of the vast majority of goods and services around the world TODAY!

8. What is demand?  The quantity of a good or service that buyers would wish to purchase at each conceivable price

9. An example PriceDemand 0200 10p160 20p120 30p80 40p40 50p0 The price per chocolate bar The number of chocolate bars demanded at each price How many chocolate bars are demanded when the price is 40p? What happens to demand why price falls to 20p

10. 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

11. 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

12. Imagine  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 The price of umbrellas fallsThe price of petrol rises

13. Remember this PriceDemand 0200 10p160 20p120 30p80 40p40 50p0

14. The Demand curve 0 Price output 200 10 40 30 20 50 15010050 X X X X X X Write a sentence to describe the demand curve A change in price causes A MOVEMENT ALONG THE DEMAND CURVE Write a sentence to describe the MOVEMENT along the demand curve when price changes from 20p to 30p

15. 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

16. What causes a shift in demand?  Changes in  Income  Price of other goods (substitutes and complementary)  Fashion  Advertising  Weather  Demographics

17. What does a shift look like? 0 Price 200 10 40 30 20 50 15010050 D D1 Demand has shifted from D to D1. Write a sentence to say what has happened to quantity demanded at a price of 30p Draw a third line to show demand shifting outwards. Label it D2 D2 Explain what has happened to quantity demanded – ceteris paribus

18. Look at the following situations  Copy them into your books 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

19. Homework  Draw a demand graph for each situation in the slide above – there will be 5 graphs in total  Write two or three sentences about each one to explain what has happened