grade 9 ems demand and supply - google search

Demand and Supply booklet 2014

Grade 9 EMS – Demand and Supply

Name:

Class

Teach a parrot the terms "supply and demand" and you've got an economist. - Thomas Carlyle

1

In Demand and Supply

Price Theory:

Price theory studies how prices are determined through the interaction of DEMAND

(how badly consumers want an item) and SUPPLY (how much of that item is

available). In this section we will focus on demand and supply separately and then

look at how they interact together to form a price.

DEMAND

The factors that influence demand:

1. Price: The relationship between price and the quantity demanded is seen in

the Law of Demand. At higher prices, less is demanded and at lower prices

more is demanded.

2. Other factors:

How much money the consumers have (Income).

Consumer buying patterns – influenced by factors such as weather,

fashion and advertising.

The availability and price of other products. These are divided into two categories:

Substitute products and Complementary product.

Shifts

Vs.

Movements

Law of demand and supply:

A low price will result in a high demand, and vice versa,

A high price will result in a high Supply, and vice versa.

Demand: This refers to how much

(quantity) consumers are willing

and able to buy.

2

Substitutes and complementary products:

A substitute is a product that fulfills the same need as another product.

Can you think of some examples?

1. Coffee Tea 6.

2. Butter Margarine 7.

3. Rice Pasta 8.

4. Coke Fruit Juice 9.

5. 10

Economic Impact:

If the price of a product with a substitute increases then:

The demand for the substitute will increase even though there has been no change in its price.

If the price of a product with a substitute decreases then:

The demand for the substitute will decrease, even though there has been no change in its price.

A complementary product is a product that is always used in conjunction with another

product. Can you think of some examples?

1. Razor Blades 6. Pen Tippex

2. Cup Saucer 7. Pencil Eraser

3. Shoes Socks 8.

4. Bread Butter 9.

5. PC Windows 10

Economic Impact: If the price of a product with a complement increases then:

The demand for the compliment will decrease even though there has been no change in its price.

If the price of a product with a complement decreases then:

The demand for the compliment will increase, even though there has been no change in its price.

3

A movement on a demand or supply curve refers to a change in the quantity demanded or supplied with a change in the price of the product.

P

ric

e

R100

R90

R80

R70

R60

R50

R40

R30

R20

R10

0 5 10 15 20 25 30 35 40 45 50 55 60 65

QUANTITY DEMANDED

Assume the price is R50 per unit, how many units would be demanded? Draw this point on the graph. If the price changes to R80 per unit, how many units are now demanded? Draw this new point on the graph. The information supplied for demand and supply is for a specific ‘market’, it tells us about a

market’s demand for a particular product. This is based on a number of factors, which include:

how many people are in this market, how much money they have to spend, and what their current

taste or preference is.

This change in quantity demanded represents a movement on the demand curve.

NB. The curve remains the same! In the above movements, what is the only variable mentioned? With regard to demand, what else could change that would affect demand?

The number of people

The income or available money of the market

Tastes or preference of the market

The availability of a similar product

Price in Rand

Quantity demanded

R10 60

R20 55

R30 50

R40 45

R50 40

R60 35

R70 30

R80 25

R90 20

R100 15

This change in quantity demanded represents a movement on the

demand curve.

NB. The curve remains the same!

Price

4

Activity 6.2 (page 97)

2a

b

c

d

e

3a


2a

b

c

d

3a

b

5

Shifts in demand:

A shift in demand takes place when demand either increases or decreases without a

change in price. This takes place for the following reasons:

Changes in income levels

Seasonal changes

Fashions

Price of other products

An increase in demand:

Demand Schedule

Price Original demand Increased demand

R5 60 units 80 units





R30 10 units 30 untis

PR

ICE

30

25

20

15

10

5

0 10 20 30 40 50 60 70 80

QUANTITY

D1

D1

D2

D2

The demand schedule above shows an

increase in demand at various price levels.

At R5 60 units were demanded, now due

to changes, 80 units are demanded at a

price of R5. At each price level there is a

new increased demand.

Due to the changes seen on the demand

schedule, a new demand curve (D2) can be

drawn. The changes can be seen in the

shift from D1 to D2.

6

A decrease in demand:

Demand Schedule

Price Original demand Decreased demand







PR

ICE

40

30

25

20

15

10

5

0 10 20 30 40 50 60 70 80 90

QUANTITY

Factors that can change demand: 1. Price – this is the obvious one (but besides this) 2. Change in personal income 3. Change in fashion 4. Existence of a substitute product (NB!!) 5. Improved advertising 6. Advances in technology 7. Changes in the weather (eg umbrellas in winter) 8. Changes in the price of a complimentary product

D1

D1

D2

D2

The demand schedule above shows a

decrease in demand at various price

levels. At R5 80 units were demanded,

now due to changes, 60 units are

demanded at a price of R5. At each price

level there is a new decreased demand.

Due to the changes seen on the demand

schedule, a new demand curve (D2) can be


shift from D1 to D2.

7

SUPPLY

The factors that influence supply:

1. Price: The relationship between price and the quantity supplied is seen in the

Law of Supply. At higher prices, more is supplied and at lower prices less is

supplied.

2. Other factors:

The cost of production (If costs drop, supply will increase).

Improvements in technology and production methods (If technology

improves, supply will increase).

The number of other suppliers in the market (more producers means

increased supply).

The Law of Supply

The law of supply states that if the price of a product increases, the supply of that

product will increase.

Conversely, if the price of a product decreases, the supply of that product will

decrease.

Supply: This refers to how much

(quantity) suppliers are willing and

able to supply to the market.

8

The same is true for supply!

P

ric

e

R100

R90

R80

R70

R60

R50

R40

R30

R20

R10

0 5 10 15 20 25 30 35 40 45 50 55 60 65

QUANTITY Supplied

Assume the price is R50 per unit: How many units would businesses be prepared to supply? Show this on the supply curve. If the price of the product were to increase to R80 per unit, how many units would suppliers be prepared to supply now? Show this point on the graph.


2d

PR

ICE

7

6

5

4

3

2

0 25 50 75 100

QUANTITY

Price in Rand

Quantity Supplied

R10 15

R20 20

R30 25

R40 30

R50 35

R60 40

R70 45

R80 50

R90 55

R100 60

9

Shifts in supply:

A shift in supply takes place when supply either increases or decreases without a

change in price. This takes place for the following reasons:

A change in the cost of producing the item.

o As a result of a change in the price of inputs,

o Or a change in the price of production technology.

A change in the number of suppliers in the market.

A change in the price of an alternative product.

An increase in supply

Caused by:

A decrease in the cost of production

More suppliers in the market

Supply Schedule

Price Original supply Increased supply







PR

ICE

30

25

20

15

10

5

0 10 20 30 40 50 60 70 80

QUANTITY

S1

S1

S2

S2

The supply schedule above shows an

increase in supply at various price levels.

At R5 10 units were supplied, now due to

changes, 30 units are supplied at a price of

R5. At each price level there is a new

increased supply.

Due to the changes seen on the supply

schedule, a new supply curve (S2) can be


shift from S1 to S2.

10

A decrease in supply:

Caused by:

An increase in the cost of production

Fewer suppliers in the market

Supply Schedule

Price Original supply Decreased supply







PR

ICE

40

30

25

20

15

10

5

0 10 20 30 40 50 60 70 80 90

QUANTITY

S1

S1 S2

S2

The supply schedule above shows a

decrease in supply at various price levels.

At R5 30 units were supplied, now due to

changes, 20 units are supplied at a price of

R5. At each price level there is a new

decreased supply.

Due to the changes seen on the supply

schedule, a new supply curve (S2) can be


shift from S1 to S2.

11

Market Equilibrium:

Study the graph and answer the questions that follow:

1. At R2 how many units are demanded?

2. At R2 how many units are supplied?

3. Does this mean that everyone can get a unit?

4. At R4, how many units are demanded?

5. At R4, how many units are supplied?

6. Are all units sold?

Surplus: If there is a surplus of products in the market, the suppliers will drop the price of the product until all products are sold.

Shortage:

If there is a shortage of products, the price of the product will rise, as consumers ‘compete’ to buy the product. As the price rises, so demand for the product drops.

12

Market Equilibrium is found: In this way, the price and quantity supplied and demanded go up and down until equilibrium is found where Demand meets Supply.

13


Choose the correct answer between brackets:

1a. The market equilibtium price of radios is (R30, R50, R60)

b. When the price is R70 there is an excess (supply/demand) of radios this leades

to a (surplus/shortage). This will cause producers to (increase/decrease) their

prices.

c. When the price is R30 there is an excess (supply/demand) of radios this leades

to a (surplus/shortage). This will cause producers to (increase/decrease) their

prices.

grade 9 ems demand and supply - google search

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