AS Economics and Business
Unit 1
Changes in Price
Examiner
favourite topic!
Appears on most
papers…
Lesson Objectives
• To be able to discuss how changes in the
conditions of demand and supply affect price
and output
• To be able to answer past paper questions on
the topic
You need a ruler and pencil for this
lesson
Starter
• If we all want and demand a particular
product (iphone 6?) will a business (Apple):
• A) Increase supply and increase price
• B) Decrease supply and decrease price
• C) Increase supply and decrease price
A rise in demand – effect on price
• A rise in demand will SHIFT the demand curve
to the right – prices rise
A fall in demand – effect on price
• A fall in demand will SHIFT the demand curve
to the left, lots of surplus so prices will fall
Note
• A change in PRICE does
not shift the curve
• There is a movement
along the curve
• If there is a change in
PRICE there is
movement not shift
A rise in supply – effect on price
• A rise in supply will SHIFT the supply curve to
the right, lots of surplus so prices fall
A fall in supply – effect on price
• A fall in supply will SHIFT the supply curve to
the left and as goods are scarce prices will rise
Recap
1. Falls in supply and demand shifts
left
2. Rises in supply and demand shifts
right
3. Changes in price causes
movement along curves
4. Make sure you have points 1-3
before moving on
Example
• The demand for Oakley sunglasses rises due to the hot weather…. Rise in
demand – shift to right, Draw on Axis labels and Change from P1 to P2 and
Q1 to Q2
Answer to example
Price
Supply
p2
p1
D2
D1
0
Q1
Q2
Quantity
Sample question 1
Answer question 1
Correct answer is D – increase in demand
• This will cause a movement along the demand curve (1 mark) and results in a rise in
quantity demanded. (1 mark)
• A change in price does not shift the demand curve. (1 mark)
• A reduction in price will result in more Nintendos being sold as the price is cheaper.
(1 mark).
• The DSi is relatively expensive and might be classed as a luxury good. (1 mark)
• A shift left in the demand indicates a reduction in demand not an increase due to
demand factors such as income, fashion etc. not due to a change in price .(1 mark)
• A shift right in the demand curve indicates an increase in demand due to demand
factors such as income, fashion etc. not due to a change in price. (1 mark)
• A fall in demand is more likely to occur when there has been an increase in price and
therefore a decrease in quantity demanded (1 mark)
• A diagram showing a movement along the demand curve (1 mark)
• A contextualised diagram (DSi) showing a movement along the demand curve (2
marks)
Sample question 2
8 marks
Answer question 2
(Knowledge 3, Application 3, Analysis 2)
Diagram: 5 marks
Written Explanation: 3 marks
Correct labelling of axes with P and Q (1 mark) Supply and demand
curves drawn correctly (1 mark)
Initial equilibrium shown (1 mark) Shift in demand curve to the right (1
mark)
New equilibrium correctly shown (1 mark) Recognising shortage of
accommodation and how this would affect both price and quantity – a
rise in quantity demanded at a higher price. More able students may
refer to the price elasticity of supply either in the diagram (show
inelastic supply curve) or in their written explanation. Needs to have
context - rental properties/rooms etc rather than just a description of
what is happening in the diagram.
NB: A total of 5 marks are available for the correct diagram
NB: Answers lacking a diagram, maximum of 3 marks.
Diagram on next slide
Diagram for question 2
You can draw the lines straight…
recognise this??
Revision Video
Revision Video 2