)Unit 2

The price system and

the microeconomy
(AS Level)
UNIT INTRODUCTION
>Chapter 7
Demand and supply curves

LEARNING INTENTIONS
In this chapter you will learn how to:
define the meaning of effective demand
explain the importance of individual and market demand and supply
explain the factors that affect demand
explain the factors that affect supply 7.
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analyse the causes of a shift in the demand curve ()
analyse the causes of a shift in the supply curve (S) In r
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distinguish between the shift in the demand or supply curve and the movement along these curves. Sign
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 7 Demand and supply curves

ECONOMICS IN CONTEXT
Markets in action

Chinacar market shows signs of improvement in March

China Daily, 15 April 2019

EU carbon market going into a frenzy Daily Telegraph, 17 Apríl 2019

economy
Australia cuts interest rates to bolster
The Times,5 June 2019

Ringgit slightly higher at opening New Straits Times, 26 August 2019

The war on sugar's biggest casualty: global prices

Wall Street Journal, 12 August 2018

the world
Fiqure 7.1: Newspaper headlines from around

Discuss in a pair or a group:

each represents. ldentify some of the demand and
For each of the headlines in Figure 7.1, identify the market which
supply conditions that are likely to underpin each market.

To many people, a market is something that happens in

7.1 The price mechanism a village, town or city centre once or twice a
week. The
market is made up of a number of trading stalls selling
and markets a range of products: food such as fruit, vegetables,
meat
and fish; clothing; and a wide selection of other items.
In market economies, the price mechanism is essential to the Economists take a broader view of the word market'. At
allocation of resources. The price mechanism sends out a the core of any market is trade - somebody has
somethìng
signal from consumers to producers. If there is oversupply to selland somebodyelse has to want to buy the product
in a market, consumers are sending a signal to producers come together for the
that fewerresources should be allocated to a product. In that is offered. So, whenever people
a market.
the case of a shortage, the signal from consumers is that purposes of exchange or trade, there is
market,
more resources need to be allocated to the product. The For example, economists talk aboutthe housing
in the
price mechanism is self-regulating, which means that it does where people rent, buy and sellproperty. Look
agents' ofices
not require any involvement from the government while the newspapers or in the windows of property
(Figure 7.2).
mechanism is working efficiently. and you will see evidence of this market
Economists also refer to the labour market, where
individuals' services are "bought and sold' - anyone who
labour market
KEY TERMS has a part-time or full-time job is part of the
as a seller of labour.
price mechanism: the means of allocating resources in agricultural
a market economy. There are global markets for a wide range ofmarket for
products such as coffee, tea and cotton. The
consumers: individuals or households who buy goods oil, for example, is closely monitored by governments,
and downs
and services for their own use or for others. transport companies and individuals. The ups
trade. on our
market:where buyers and sellers5get together to of the oil market can have an important influence
lives and our economies.

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