Objectifs globaux :
Identify the factors that can modify the balance of the market
Objectifs travaillés :
Analysing how supply/demand affects the equilibrium price, Unitaid program
Resources :
Video: How can we explain the increase in housing prices in France?
PDF: Consequences on the equilibrium price upon modification of supply/demand
PDF: A tax and its effects: the example of Chirac’s tax on plane tickets
PDF: Evaluation, Seance 5
Contents
Activité 1
The increase in the price of housing: a story of supply or demand?
Watch the video and answer the questions.
Video: How can we explain the increase in housing prices in France?
Demand tends to increase (population increase, anticipation of capital gains, fall in interest rates, etc.). Graphically, this translates into a rightward shift in the demand curve.
The supply remains stable (the curve does not shift), but the quantities offered struggle to keep up with the increase in prices because of the difficulties in quickly bringing new m² to the market. Graphically, this translates into an almost vertical supply curve.
If demand shifts to the right while supply remains unchanged and the supply curve is very steep, this will result in a very large increase in the equilibrium price and a small increase in equilibrium quantities.
Activité 2
Consequences on the equilibrium price
Analyse the graphs, read the text, then answer the questions.
PDF: Consequences on the equilibrium price upon modification of supply/demand
An advertising campaign manages to increase the demand of e-books, which results in a higher e-book price, and a higher quantity sold.
A decrease in commissions from Amazon increases the supply of e-books, which results in a lower e-book price, and a higher quantity sold
An increase in demand (= a right shift of the demand curve) results in an increase in price and equilibrium quantities. An increase in supply (= a movement to the right of the supply curve) results in a fall in the equilibrium price and an increase in equilibrium quantities.
An increase in consumer income, an increase in the price of substitutes (paper books for example), a fall in the price of complementary goods (e-readers for example) … will have the same effect on the demand curve as a successful advertising campaign.
Lower labor costs, lower storage costs, lower copyright charges … will have the same effect on the supply curve as lower commissions charged by Amazon.
Activité 3
From one equilibrium to another: The automobile market case
Activité 4
A tax and its effects
- Read the text and answer the questions
PDF: A tax and its effects: the example of Chirac’s tax on plane tickets
The tax the company pays on each ticket sold represents an additional expense that the company must pay when it produces a seat. For each passenger transported, it now has to pay between €1.13 and €45.07 more than what it already cost. The company’s “willingness to receive” (= cost) therefore rises for each passenger carried. Because the company’s willingness to receive has increased for each passenger carried, the quantities offered for sale for all possible and imaginable prices are decreasing. This drop in supply leads to an increase in the equilibrium price.
Because the cost of each ticket is higher and the supply lower, the equilibrium price including tax increases and the quantities sold decrease: airlines see their revenues decrease.
Evaluation
Answer questions about this lesson.
How does a competitive market work? – Séance 5