Lesson Notes By Weeks and Term - Senior Secondary 2

Term: 1^st Term

Week: 3

Class: Senior Secondary School 2

Age: 16 years

Duration: 40 minutes of 2 periods each

Date:       

Subject:      Economics

Topic:-       Concept of demand and supply

SPECIFIC OBJECTIVES: At the end of the lesson, pupils should be able to

1. Explain the meaning of demand and supply
2. State the laws of demand and supply
3. State the factors affecting demand and supply

INSTRUCTIONAL TECHNIQUES: Identification, explanation, questions and answers, demonstration, videos from source

INSTRUCTIONAL MATERIALS: Videos, loud speaker, textbook, pictures

INSTRUCTIONAL PROCEDURES

PERIOD 1-2

NOTE

CONCEPT OF DEMAND AND SUPPLY

Demand can be defined as the quantity of commodity a consumer is willing and able to buy at a given price and at a particular period of time. Demand is willingness of a consumer while want is mere desire.

Law of Demand

The law of demand states that when the price of a good rises, the amount demanded falls, and when the price falls, the amount demanded rises.

Factors Affecting Demand 

1. Price of the Product

Consumers want to buy more of a product at a low price and less of a product at a high price. This inverse relationship between price and the amount consumers are willing and able to buy is often referred to as The Law of Demand.

2. The Consumer’s Income

For most goods, there is a positive (direct) relationship between a consumer’s income and the amount of the good that one is willing and able to buy. In other words, for these goods when income rises the demand for the product will increase; when income falls, the demand for the product will decrease. We call these types of goods normal goods..

3. The Price of Related Goods

As with income, the effect that this has on the amount that one is willing and able to buy depends on the type of good we’re talking about. Think about two goods that are typically consumed together. For example, bagels and cream cheese. We call these types of goods compliments. If the price of a bagel goes up, the Law of Demand tells us that we will be willing/able to buy fewer bagels. But if we want fewer bagels, we will also want to use less cream cheese (since we typically use them together).

On the other hand, some goods are considered to be substitutes for one another: you don’t consume both of them together, but instead choose to consume one or the other. For example, for some people Coke and Pepsi are substitutes (as with inferior goods, what is a substitute good for one person may not be a substitute for another person). If the price of Coke increases, this may make Pepsi relatively more attractive. The Law of Demand tells us that fewer people will buy Coke; some of these people may decide to switch to Pepsi instead, therefore increasing the amount of Pepsi that people are willing and able to buy.

4. The Tastes and Preferences of Consumers

There are all kinds of things that can change one’s tastes or preferences that cause people to want to buy more or less of a product. For example, if a celebrity endorses a new product, this may increase the demand for a product. On the other hand, if a new health study comes out saying something is bad for your health, this may decrease the demand for the product.

5. The Consumer’s Expectations

It doesn’t just matter what is currently going on – one’s expectations for the future can also affect how much of a product one is willing and able to buy. For example, if you hear that Apple will soon introduce a new iPod that has more memory and longer battery life, you (and other consumers) may decide to wait to buy an iPod until the new product comes out. When people decide to wait, they are decreasing the current demand for iPods because of what they expect to happen in the future.

6. The Number of Consumers in the Market

As more or fewer consumers enter the market this has a direct effect on the amount of a product that consumers (in general) are willing and able to buy. For example, a pizza shop located near a University will have more demand and thus higher sales during the fall and spring semesters. In the summers, when less students are taking classes, the demand for their product will decrease because the number of consumers in the area has significantly decreased

SUPPLY

Supply is the amount or quantity of a commodity which the seller or producer is willing and able to offer for sale at a given price and at a particular period of time. Supply is not an entire of stock but flow that offered for sale.

LAW OF SUPPLY

The law of supply states that the higher the price , the higher the quantity of produce that will be supplied or the lower the price the lower the quantity of produce that will be offered for sale.

FACTORS AFFECTING SUPPLY

1. A decrease in costs of production. This means business can supply more at each price. Lower costs could be due to lower wages, lower raw material costs
2. More firms. An increase in the number of producers will cause an increase in supply.
3. Investment in capacity. Expansion in the capacity of existing firms, e.g. building a new factory
4. The profitability of alternative products. If a farmer sees the price of biofeuls increase, he may switch to growing crops for biofuels on all his fields and this will lead to a fall in the supply of food, such as wheat.
5. Related supply. If there is an increase in the supply of beef (from cows) then there will also be an increase in the supply of leather.
6. Weather. Climatic conditions are very important for agricultural products
7. Productivity of workers. If workers become more motivated and work hard, then there will be a significant increase in output and supply.
8. Technological improvements. Improvements in technology, e.g. computers or automation, reducing firms costs.
9. Lower taxes. Lower direct taxes (e.g. tobacco tax, VAT) reduce the cost of goods.
10. Government subsidies. Increase in government subsidies will also reduce the cost of goods, e.g. train subsidies reduce the price of train tickets.
11. Objectives of firms. If firms are profit maximizes and collude with other firms, we may see a fall in supply as they try to maximize profits. However, if they switch to targeting sales or revenue maximization, then we will see an increase in supply.

EVALUATION:    1. Define demand and supply

2. State the law of demand and the law of supply
3. List and explain five factors each that affects demand and supply

CLASSWORK: As in evaluation

CONCLUSION: The teacher commends the students positively