Lesson Notes By Weeks and Term v5 - Grade 8

Lesson Video

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Performance objectives

• Define market, demand, and supply.
• Explain the concept of demand and what influences it.
• Explain the concept of supply and what influences it.
• Describe how demand and supply set prices.
• Give real-life South African examples.

Lesson summary

The study of markets, demand, and supply is fundamental to understanding how our South African economy works. Every day, we interact with markets when we buy groceries, clothes, or even airtime for our phones. Understanding how prices are determined, why some products are readily available while others are scarce, and how businesses make decisions based on what consumers want is crucial for making informed choices as citizens, consumers, and future entrepreneurs. This topic is relevant because it helps you understand how your spending habits affect businesses, how businesses affect the availability of goods and services, and ultimately, how the economy affects your everyday life.

Lesson notes

What is a Market? In economics, a market isn't just a physical place like the local fruit and vegetable market. It's any situation where buyers and sellers come together to exchange goods or services. This can be a physical store, an online shop, or even a flea market. The key is that there's an interaction between people who want to buy something (buyers or consumers) and people who want to sell something (sellers or producers).

Example: A spaza shop in your township is a market. People go there to buy bread, milk, sweets, and other everyday items. The spaza shop owner is the seller, and the people buying the goods are the buyers. An online marketplace like Takealot is another type of market, where many different sellers offer products to buyers across the country. Demand Demand refers to the quantity of a good or service that buyers are willing and able to purchase at a given price during a specific period. It’s important to note that "willing and able" are crucial. You might want a new Playstation 5, but if you can’t afford it, you don't demand it in the economic sense.

Law of Demand: The most important principle about demand is the Law of Demand. This law states that as the price of a good or service increases, the quantity demanded decreases, and vice versa (all other factors remaining constant). In other words, people tend to buy more of something when it's cheaper and less of it when it's more expensive.

Factors Influencing Demand: Several things can affect demand besides price.

These are known as determinants of demand: Income: If people's income increases, they usually demand more of most goods and services (these are called normal goods). For example, if people get a salary increase, they might buy more expensive cuts of meat instead of just chicken.

Tastes and Preferences: What people like and want changes over time. Advertising can also influence tastes. For example, a popular musician endorsing a particular brand of shoes can increase the demand for those shoes.

Price of Related Goods: Substitutes: These are goods that can be used in place of each other. If the price of one good increases, the demand for its substitute usually increases. For example, if the price of Coca-Cola increases, people might switch to buying Pepsi, increasing the demand for Pepsi.

Complements: These are goods that are used together. If the price of one good increases, the demand for its complement usually decreases. For example, if the price of petrol increases, the demand for cars might decrease (because it becomes more expensive to drive).

Population Size: A larger population generally means more demand for goods and services.

Expectations: If people expect the price of something to increase in the future, they might buy more of it now, increasing current demand. For example, if people expect the price of electricity to go up, they might buy more energy-saving light bulbs now. Supply Supply refers to the quantity of a good or service that sellers are willing and able to offer for sale at a given price during a specific period.

Law of Supply: The Law of Supply states that as the price of a good or service increases, the quantity supplied increases, and vice versa (all other factors remaining constant). In other words, businesses are generally willing to produce and sell more of something when they can get a higher price for it.

Factors Influencing Supply: Several factors affect supply besides price.

These are known as determinants of supply: Cost of Production: This includes the cost of raw materials, labor, and other inputs. If the cost of production increases, it becomes less profitable to produce the good or service, so supply decreases. For example, if the price of fertilizer increases, it becomes more expensive for farmers to grow maize, and the supply of maize might decrease.

Technology: Improvements in technology can reduce the cost of production and increase supply. For example, new farming techniques can allow farmers to produce more maize with the same amount of land and labor.

Number of Sellers: More sellers in the market generally mean more supply.

Government Policies: Taxes and subsidies can affect supply. Taxes increase the cost of production, decreasing supply, while subsidies reduce the cost of production, increasing supply.

Expectations: If producers expect the price of something to increase in the future, they might decrease current supply to sell more later at the higher price.

Interaction of Demand and Supply: Price Determination The price of a good or service in a market is determined by the interaction of demand and supply.

Equilibrium Price: The equilibrium price is the price at which the quantity demanded equals the quantity supplied. At this price, there is no surplus (excess supply) or shortage (excess demand). The market "clears" because everything that is produced is bought.

Surplus: A surplus occurs when the quantity supplied is greater than the quantity demanded.