chp10 Flashcards
Explain why food prices in most countries have
continued to increase.
ii Explain why the prices of mobile phones have
continued to fall.
Food prices in most countries have continued to increase for two reasons. First, increases in population increase the total demand for food. Second, as income and living standards increase, the demand for some types of food also increases. An example of this is in China and india where increasing incomes have led to an increase in demand for some types of meat, especially poultry. Supply has found it difficult to keep up with increased demand and so prices have increased.
The main reason for the falling prices of mobile phones is that production costs have been falling rapidly. Mobile phones are now mass produced, usually in economies with low labour costs.
Manufacturers can reduce costs and hence prices through mass production. In turn, the fall in prices of mobile phones has increased their attractiveness to a high percentage of the world’s population in all types of economy.
Changing market conditions cause prices and sales to change there are various likely consequences like
An increase or decrease in demand
And increase or decrease in supply
A change in both demand and supply
Why do prices change?
Prices change due to changing market conditions. For example there may be an increase or decrease in demand or an increase or decrease in supply in a market of any these will lead to price changing
Draw a diagram to show the effect on equilibrium price and sales of a decrease in demand and a decrease in supply
A decrease in demand is shown by a shift to the left of the demand curve DD. As a result, the equilibrium price falls and the equilibrium quantity also falls.
A decrease in supply is shown by a shift to the left of the supply curve SS. As a result, the equilibrium price rises and the equilibrium quantity falls.
Structured skills practice
The prices of mobile phones have continued to fall due to more efficient production methods and an increasing demand from consumers in all types of economy
i Explain, using a demand and supply curve diagram, how prices have fallen in
this way.
Suppose the changes in conditions of demand and supply occurred at the same time. Explain, using a diagram, the consequences for equilibrium price and sales.
More efficient production methods are shown by a shift to the right of the supply curve for mobile phones. The increase in demand is shown by a shift to the right of the demand curve.
When combined, given a larger shift of the supply curve, prices of mobile phones have fallen from P to PI.
The diagram shows a shift to the right in the demand curve and the supply curve. The outcome is that the equilibrium price remains at P with an increase in the quantity traded to Q. As a result sales have increased
The supply of a product increases. What will happen as a result?
A movement along the demand curve and a fall in price
The demand for diesel vehicles in the UK fell in 2017 following concerns about air pollution.
What happens as a result?
A movement along the supply curve and a fall in price
Following a change in demand and a change in supply, the equilibrium price has fallen and sales have increased. What does this indicate?
The increase in supply is greater than the increase in demand
