Markets in Action: Introduction to Demand Curves I A Level and IB Economics

Summary

This video explores the demand curve for strawberries, focusing on how price changes affect demand. It explains that price changes cause movements along the demand curve, while other factors like the price of substitutes, complements, income changes, or successful advertising can shift the curve. The video also discusses why demand curves are often drawn as straight lines in economic models, although real-world demand tends to be non-linear, with varying sensitivity to price changes at different price points. Future videos will cover supply curves.

Takeaways

• 📉 There is an inverse relationship between the price of strawberries and the quantity demanded by consumers, meaning higher prices lead to lower demand and vice versa.
• 📈 A decrease in price results in an expansion of demand, while an increase in price causes a contraction of demand along the same demand curve.
• 📝 A change in the price of strawberries leads to movement along the demand curve, not a shift of the curve itself.
• ↔️ Shifts in the demand curve occur due to factors other than the product's price, such as changes in consumer preferences or external market conditions.
• 🍒 A rise in the price of a substitute for strawberries, such as cherries, causes an outward shift in the demand curve for strawberries.
• 🍦 An increase in the price of a complement, like ice cream, leads to an inward shift in the demand curve for strawberries, as fewer people buy the complementary products.
• 💰 A decrease in real disposable income results in an inward shift in demand if strawberries are considered a normal good.
• 📢 Successful advertising campaigns that promote the health benefits of strawberries cause an outward shift in the demand curve, as more people want to buy them at any given price.
• 🏷️ A price promotion by supermarkets leads to movement along the demand curve, not a shift, as it is a change in the product's price.
• 🔄 Although demand curves are typically drawn as straight lines for simplicity, in reality, the demand for a product like strawberries is more likely to be non-linear, with different levels of responsiveness at different price points.

Q & A

What is the relationship between the market price of strawberries and the quantity demanded?

The relationship between the market price of strawberries and the quantity demanded is typically inverse. As the price increases, the quantity demanded decreases, and as the price decreases, the quantity demanded increases.

What happens when the price of strawberries increases from £2 to £2.50 per kilogram?

When the price increases from £2 to £2.50 per kilogram, there is a contraction of demand. Consumers might reduce their demand for strawberries or switch to alternative products.

How does a decrease in the price of strawberries affect demand?

A decrease in the price of strawberries, for example from £2 to £1.50 per kilogram, acts as an incentive for consumers to increase their demand, leading to an expansion of demand.

What is the difference between a movement along the demand curve and a shift in the demand curve?

A movement along the demand curve occurs when the price of the product itself changes. A shift in the demand curve happens due to changes in factors other than the product’s price, such as consumer income or preferences.

What causes an outward shift in the demand curve for strawberries?

An outward shift in the demand curve for strawberries occurs when there is an increase in demand at the same price level. This can be due to factors like successful advertising or a rise in the price of substitute goods.

What could cause an inward shift of the demand curve for strawberries?

An inward shift of the demand curve could be caused by factors such as a fall in real disposable income, or a rise in the price of complementary goods, like ice cream, making strawberries less desirable.

How does a rise in the price of a substitute good, like cherries, affect the demand for strawberries?

A rise in the price of a substitute good, such as cherries, would lead to an outward shift in the demand curve for strawberries as consumers might switch from cherries to strawberries.

What effect would a successful advertising campaign promoting strawberries have on demand?

A successful advertising campaign would likely cause an outward shift in the demand curve for strawberries, as consumers perceive increased benefits and more people enter the market to purchase them.

What happens to the demand curve when supermarkets lower the price of strawberries during a promotion?

A price promotion by supermarkets causes a movement along the demand curve, leading to an increase in quantity traded but does not shift the demand curve itself.

Why do economists often draw demand curves as straight lines, and is this realistic?

Economists draw demand curves as straight lines to simplify analysis. However, in reality, demand curves are often non-linear, as the responsiveness of demand to price changes can vary at different price points.