Question : How does the market respond to demand?
Objectifs : Understand how the global market works.
Resources :
PDF: How can the drop in the price of coffee be explained?
Video: The effects of a butter shortage on its price
PDF: Séance 1 evaluation
Contents
Activité 1
Look at the three images and situations. Can you match them?
Situation 1
At price P, the market is in short supply: the quantity supplied is indeed less than the quantity demanded. The price will therefore tend to increase.
Situation 2
At price P, the market is balanced: the quantity offered is indeed equal to the quantity requested. The price will therefore tend to remain unchanged.
Situation 3
At price P, the market is surplus: the quantity supplied is indeed greater than the quantity demanded. The price will therefore have tendency to decrease.
Match the schema letters to the situation numbers.
Copy the schemas and the descriptions into your copybooks.
Activité 2
Choose the correct answers to these questions
- The law of demand:
A. expresses the decreasing relationship that exists between the market price and the quantities demanded.
B. expresses the increasing relationship between the market price and the quantities demanded.
C. expresses the relationship of dependence between companies and a market demand.
A
- The law of supply:
A. expresses the decreasing relationship that exists between the market price and the quantities offered.
B. expresses the increasing relationship between the market price and the quantities offered.
C. expresses the relationship of dependence of consumers on the market supply.
B
- True or False? “Demand” and “quantity demanded” are two terms that can be used interchangeably.:
FALSE!
Write these descriptions.
The law of demand
The higher the price, the lower the quantities demanded
The law of supply
As the price of an item goes up, the more supply will be increased. (due to suppliers need to increase profit)
Demand
The willingness and ability for a person to purchase.
Quantity demanded
The quantity of an economic good or service desired.
Supply
The relationship between the good’s price and how much businesses are willing to provide.
Quantity supplied
The amount of goods business provide at a specific price. QS is an actual number.
Activité 3
The good weather conditions and the yield improvements made possible by the GM coffee plants have allowed a significant increase in supply (a shift in the supply curve), resulting in a fall in the equilibrium price.
The fall in the equilibrium price will lead to an increase in the quantity of coffee demanded (a change on the demand curve).
Advantages: increase in quantities sold and purchased.
Disadvantages: reduction in the income of some producers, ecological consequences.
Activité 4
The market is in imbalance: the quantities offered are lower than the quantities requested.
If the market is experiencing a shortage, it is because supply of milk has decreased (a drop in production in New Zealand and in Europe) and demand has increased in China; the prices in the French market could not adapt.
The price of butter increases: faced with the shortage of milk, consumers will outbid (surenchérir) each other. The result is cheese producers, who see a bigger profit margin, have more leeway (marge de manoeuvre) to purchase the milk.
Evaluation
Answer questions about this lesson.
How does a competitive market work? – Lesson 1