1. Theme 1: Introduction to markets and market failure
In this theme, students will consider how markets work, looking at how supply and demand interact to allocate resources in local, national and international markets. They will learn how to apply supply and demand analysis to real-world situations and be able to offer explanations of consumer behaviour. This will involve looking at both how consumers act in a rational way to maximise utility and how
firms maximise profit, but also why consumers may not behave rationally.
1.2 How markets work
Subject content
1.2.4 Supply
What students need to learn:
a) The distinction between movements along a supply
curve and shifts of a supply curve
b) The factors that may cause a shift in the supply curve
(the conditions of supply)

2. Supply:
The amount of products/services that are supplied onto the market i.e. produced
So the amount of a product to a particular market will increase as the price increases.
Why?
Existing suppliers will increase their supply because they see the chance of extra profit
Other entrepreneurs are attracted to the market by the increased price and therefore increased profit.

3. Supply
You should now be able to apply what you have learnt about demand to movements and shifts of the supply curve.
Task: Which diagram shows a movement and which shows a shift in supply? Explain what is meant by a movement along the supply curve and a shift of the supply curve.
Extension: Can you think of any factors which could cause the supply of a product to change when the price remains unchanged?

4. The Supply Curve (for most products)
Price S
Remember:
Label your axis
Title
Label line P1 Q1 P Q
Quantity

5. What factors might affect the supply for a product or service?
Price
Improvements in technology
Prices of raw materials and other costs of production e.g. wage costs
Climate (for agricultural products).
Which do you think cause a movement or a shift?

6. Summary exercise In each of the scenarios below, you need to decide:
if supply or demand is affected
if there is movement along or a shift of the curve
the direction of the movement (extension/contraction) or shift (increase/decrease)
1 Market: Frozen pizzas
Event: An increase in the price of frozen pizzas due to an increase in demand
Answer: A movement (extension) of the supply curve.
2 Market: Holidays to Majorca
Event: There is a serious outbreak of food poisoning at a resort in Florida.
Answer: A shift (increase) of the demand curve.
3 Market: Tablet computers
Event: Suppliers drastically cut the price of tablets due to their costs of
production falling.
Answer: A movement (extension) of the demand curve.
4 Market: Alcohol
Event: The government decides to increase the tax charged on alcohol.
Answer: A shift (decrease) of the supply curve.