Objectifs globaux : Interpret the slope and shifts of supply and demand curves.
Objectifs travaillés : Understanding how supply affects demand, and vice-versa.
Resources :
Video: Reactions to a price hike
PDF: Supply and Demand Curves
PDF: Behind the demand curve: Three determinants
PDF: Behind the supply curve: Three determinants
PDF: Séance 3 evaluation
Contents
Activité 1
Reactions to a fuel hike.
Watch this ITV News report from June 2018, and answer the questions.
Mr and Mrs Cookson have promised to cut down expenditure on other goods/services, and drive less.
Due to his large fleet of business vehicles, Steve Long’s company has been hit hard. He thinks that business will raise the price of their goods and services to pass the cost on to the consumers.
In the short term, we can expect that the quantities consumed will not decrease much. In the longer term, however, faced with higher prices, consumers drive less, use less fuel-efficient cars, turn to substitutes, so the quantities consumed will decrease more sharply.
How supply and demand are related.
True or false?
Activité 2
The influence of prices on the quantities demanded and offered.
If the market price is €2, then the quantity of coffee offered will be 12 thousand kilos.
The quantity demanded decreases; the quantity supplied increases.
A quasi-verticality of the demand curve means that, whatever the price offered, the quantities demanded remain virtually unchanged.
A quasi-horizontality of the demand curve means that, in the case of a small variation in the price, the quantities demanded will vary greatly.
Activité 3
Concentrate on the demand curve.
If income increases, consumers, (no matter the price) generally increase the quantities demanded (normal and higher-grade goods) because of a greater willingness to pay. In some cases however (inferior goods), the increase in income leads consumers to reduce the quantities demanded at any price.
Olive oil and sunflower oil, cycling and public transport in town, carpooling and bus travel … are examples of highly substitutable goods or services.
Successful advertising campaigns, fashion, a change in education … can change tastes for books.
Increase in income → increase in demand (demand shift to the right). The quantities demanded are greater because the willingness to pay has increased.
Increase in the price of paper books → increase in demand (= shift in demand to the right). The quantities demanded are greater because the willingness to pay has increased.
Digital books more fashionable → increase in demand (= shift in demand to the right). The quantities demanded are greater because the willingness to pay has increased.
Activité 4
Concentrate on the supply curve.
A better organization of work among digital book publishers, an improvement in the software used … can be seen as a positive supply shock (= an event likely to shift the supply curve to the right) .
The increase in publisher wages causes the supply curve to shift to the left (a decrease in supply).
An increase in taxes is akin to an increase in production costs: publishers now demand a higher price, necessary to cover their now higher production costs .
Improved technology => increase in supply (= shift of the supply curve to the right): The quantities offered are greater because the cost of production has decreased.
Decrease in the costs of putting digital books online => increase in supply (= shift of the supply curve to the right): The quantities offered are greater because the cost of production has decreased.
Decrease in taxes => increase in supply (= shift of the supply curve to the right): The quantities offered are greater because the cost of production has decreased.
Evaluation
How does a competitive market work? – Séance 3