Lesson Notes By Weeks and Term v5 - Grade 8

Lesson Video

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Performance objectives

• Define 'demand' and 'supply' with South African examples.
• Identify factors that change demand and supply.
• Explain how price is determined in a market.
• Analyse how changes in demand or supply affect price.
• Apply these concepts to real-world issues like shortages.

Lesson summary

This week, we delve into the fascinating world of markets, demand, and supply. Understanding these concepts is crucial because they affect our lives every day, from the price of bread at the corner shop to the availability of the latest cell phones. In South Africa, understanding markets can help us make informed decisions about our spending, understand how businesses operate, and even contribute to a better economy. Think about the price of pap and vleis – it changes depending on factors we'll discuss this week! Learning about demand and supply helps us understand why these changes occur.

Lesson notes

What is a Market? A market isn't always a physical place. In economics, a market is any situation where buyers and sellers interact to exchange goods or services. Think of it as anywhere that goods or services are being bought or sold. This could be your local spaza shop, a supermarket, a farmers market, or even an online platform like Takealot. The key is the interaction between those wanting to buy (demand) and those wanting to sell (supply).

Demand Explained Definition: Demand refers to the quantity of a good or service that consumers are willing and able to purchase at various prices during a specific period. It's important to note both willingness and ability. You might want a fancy car, but if you can't afford it, it doesn't count as demand in the economic sense.

The Law of Demand: The law of demand states that as the price of a good or service increases, the quantity demanded decreases, ceteris paribus (all other things being equal). In simpler terms, if something becomes more expensive, people will generally buy less of it. Conversely, if the price decreases, people will generally buy more.

Demand Curve: This is a graph that shows the relationship between the price of a good or service and the quantity demanded. The demand curve typically slopes downward from left to right. Factors Affecting Demand (Shifting the Demand Curve): Demand is not only affected by price. Other factors that can shift the entire demand curve include: Income: If people's income increases (e.g., through wage increases or government grants), they will likely demand more of most goods and services (especially normal goods). If income decreases, they will demand less.

Tastes and Preferences: Changes in tastes or preferences can affect demand. For example, if a popular celebrity starts endorsing a particular brand of sneakers, demand for those sneakers might increase.

Prices of Related Goods: Substitutes:* These are goods that can be used in place of each other (e.g., chicken and beef). If the price of beef increases, people might buy more chicken (increasing the demand for chicken).

Complements:* These are goods that are often used together (e.g., cars and petrol). If the price of petrol increases, people might buy fewer cars (decreasing the demand for cars).

Expectations: Expectations about future prices or availability can influence current demand. For example, if people expect the price of bread to increase next week, they might buy more bread this week.

Population: A larger population generally leads to higher demand for most goods and services.

Example 1: Demand for Maize Meal Imagine the price of maize meal (mealie meal) decreases. People who previously found it too expensive might now be able to afford it, increasing the quantity demanded. Also, some families might switch from rice to maize meal because it's now cheaper. This is an example of the Law of Demand.

Example 2: Shift in Demand for Rooibos Tea Suppose a study is released showing that rooibos tea has significant health benefits. This could lead to an increase in the demand for rooibos tea, shifting the entire demand curve to the right. People will want to buy more rooibos tea at every price.

Supply Explained Definition: Supply refers to the quantity of a good or service that producers are willing and able to offer for sale at various prices during a specific period. Again, willingness and ability are key. A farmer might want to sell their entire crop at a high price, but they need to be able to produce that crop.

The Law of Supply: The law of supply states that as the price of a good or service increases, the quantity supplied increases, ceteris paribus. In other words, if something becomes more profitable to sell, producers will generally produce more of it. Conversely, if the price decreases, producers will generally produce less.

Supply Curve: This is a graph that shows the relationship between the price of a good or service and the quantity supplied. The supply curve typically slopes upward from left to right. Factors Affecting Supply (Shifting the Supply Curve): Supply is also affected by factors other than price. Factors that can shift the entire supply curve include: Cost of Production: Changes in the cost of inputs (e.g., labour, raw materials, electricity) can affect supply. If the cost of production increases, supply will generally decrease.

Technology: Improvements in technology can often reduce the cost of production and increase supply.

Number of Sellers: An increase in the number of sellers in a market will generally increase supply.

Expectations: Expectations about future prices can influence current supply. For example, if farmers expect the price of wheat to be higher next year, they might plant more wheat this year.

Government Policies: Taxes can decrease supply (as they increase the cost of production), while subsidies can increase supply (as they lower the cost of production). Regulations can also affect supply.