Economics (Y10/11)

ECONOMIC NOTES: MARKETS                 (1 Week)

 Strand 1: Market and Market Equilibrium.

 Sub – strand 1.1: Nature of Markets

 

Specific Learning Outcomes

1. Define Market

 2. Identify a range of examples of markets

3. Identify the 4 types of markets

4. Describe the 4 types of markets

What is Market?

Market is a place where goods, commodities or services provided by the sellers and are bought by the buyers or purchasers depending on the need, demand, supply etc. We can say that it (market) is a place, which satisfies the potential needs of the buyers as well as the sellers. The market may have a physical existence or a virtual one.

·         A market is any place or situation where buyers and sellers can exchange goods and services.

·         A market occurs whenever potential buyers and sellers communicate their intentions to each other in some way. Examples of markets A market may be either a place or a situation

 

Types of Markets

1.       Commodity market (Place)

2.       Resource market (Situation)

3.       Foreign exchange market (Situation)

4.       Money market (Situation)

 

1.   Commodity market - A type of market where producers provide consumers with goods and services. For example; food, shoes, dental service, etc in exchange for payment.

Some examples you can find on Kiritimati island

Goods: all products found on store shelves, food from local markets, etc

Services: Gas stations, mechanic shops, tailor shops, barber shops, ATM banking, Rental cars, motels, etc

2.   Resource Market - A type of market where people provide their resources (human, capital and natural) to the producers in exchange for income such as wages, profit, rent and interest.

Some examples you can find on Kiritimati island

Human resource: Construction workers, office workers, hotel workers, Tour guides, etc

Capital resources: Loan schemes (Private, Banks, DPK, etc

Natural resources: Local food produce, Sand, Coconut trees, etc


 



3.   Money Market - A type of market that due to the supply and demand of money in the economy it allows short – term loans which involves interest. - Interest is what you pay for borrowing money and what banks pay you for saving money with them.

Some examples you can find on Kiritimati island

·         SLHS Tangomane Scheme, or other similar private loan businesses

·         Bank loans, Bank savings

·         DPK loans

4.   Foreign Exchange Market - A type of market due to the selling and buying (export and import) of one currency to another currency also known as Forex or Currency market.

 

Some examples you can find on Kiritimati island

·         Exchange rate is involved, and ‘charges’ are levied to customers in this type of market –

·          Example: Western Union and ANZ Bank.

    How this Foreign Exchange market works:

When a customer sends money overseas, for example Fiji, the customer is asked to pay Western Union for their services. For example, if you want to send $100 AUS the WU will charge you 25%  rate for their services. Therefore, you will be actually spending $125.00 for sending $100.00. The extra $25.00 is for WU service.

Ø  AUS$ (Kiribati currency) is exchanged to Fiji dollars, or other currencies, (and vice versa)

Ø  US$, or other currencies exchanged to AUS dollars (Kiribati currency), (and vice versa)

 

STUDENT ACTIVITIES AND ASSESSMENTS:         NATURE OF MARKETS

ACTIVITY 1

1.   Define Market

2.   Identify one example of a market that exists in your society

3.   Identify any types of market exists in the economy

4.   Describe the type of market stated in your answer (3).


INTERNAL ASSESSEMENT ONE   TASK 1 IA Remind your student that the attendance is 10% of the 60%

Sub - Strand 1.1: Nature of Market

 Key Learning Outcomes: Students are able to demonstrate an understanding of market through an investigation of the same as applied to local case studies. These include:

·         Commodity market, Resource market, Money market and Foreign exchange market.

·         Example of products produced in these market

·         Factor resources used in these markets.

·         Inter – dependence of factor resources. (Teacher may prefer to carry out this Assessment after Sub – Strand 1.1)

 

Specific Learning Outcomes

1. Identify and describe the nature of market in the economy

2. Identify and describe example of goods or services produced in the market

3. Describe factor resources used in the market

4. Explain the inter – dependence of factor inputs used in the market

 

Context/setting.

This assessment requires the student to collect and process information from a society and carry out an economic analysis. The theory to be investigated will be selected from Strand 1 of the Year 10/11 Economics Syllabus.

Purpose.

The purpose of this assessment is to investigate and determine the existence and nature of a particular market exists in the community.

Planning the investigation:

Any of the following scenarios comply with the requirements with regard to the planning of the investigation.

• Students may plan their own investigation (Group investigation)

• Students may plan their investigation in consultation with the teacher

• Teachers could give feed forward guidance to students by requiring them to present material to do with the planning of their investigation at a pre-set milestone.


INSTRUCTIONS FOR CONDUCTING THE IA TASK:

A. Instructions to the Teacher:

1. The students are given three weeks to prepare for this task.

2. Make available the market required for the student’s choice.

3. Divide the students to their group of your choice

4. Use the Assessment Scoring Rubric provided for marking of this task.

5. Use the Assessment Record Sheet for recording of each student’s responses.

B. Instructions to the Student:

1. Follow Requirements: the teacher discuss in relation to the syllabus. Further Instructions will be provided by your teacher to assist you in your preparation for the actual group investigation.

2. Make sure that you do your research in a group but you can include other relevant information that may allow a good flow of the investigation.

3. Submit a hard copy of your report and make sure to follow the given requirement from your teacher.

TASK 2 IA

Task 2 Instructions

This task requires students to produce a Group Power Presentation on IA Task 1: (10 – 20 minutes)

Power-point Presentation on IA Task One

 

Aim: For the students to come up with a 10 -20 minutes Powe  r Point presentation on their findings in IA Task 1 to better inform the audience on the existence of

the chosen market exists in their own economy.

 

Outcome: At the completion of this task, Students are able to achieve the selected specific learning outcomes in IA Task 1 (Strand 1: Sub – Strand 1.1).

 

Task duration: 3 weeks for preparation of the task and 10 – 15 minutes presentation.

 

Task instruction: For the students to present their findings in IA Task 1 following using the power point.

NSTRUCTIONS FOR CONDUCTING THE IA TASK

A. Instructions to the Teacher:

1. The students are given three weeks to prepare for this task.

2. Make available the equipment required for the presentation such as the laptop and projector, etc.

3. Use the Assessment Scoring Rubric provided for marking of this task.

4. Use the Assessment Record Sheet for recording of each student’s responses.

B. Instructions to the Student:

1. Follow Requirements given by the teacher. Further Instructions will be provided by your teacher to assist you in your preparation for the actual

presentation.

2. Make sure that each item in the task details are covered in your presentation but you can include other relevant information that may allow a good flow

of presentation.

3. Remember that it is a group effort, so your mark will be divided equally.

4. Submit a hard copy of your presentation to the teacher or supervisor 

Sub-strand 1.2: Circular Flow Model

Specific Learning Outcomes:

Definition

 Circular flow model is an economics model that present how money, goods and services moves between sectors in an economic system. 

Interdependence between household and producers 

All the sectors depend on each other and none could operate fully without the other sectors. For example, household sector and the producer sector are interdependent. Households rely on producers for income and commodities. Producers rely on households for factor of production (resource) and consumer spend. They are rely on each other or they are interdependent. 


Real flow 

Real Flows are movements of actual goods and services between different sectors of the economy. For example, factors of production (land, labour, capital and enterprise) supplied by household to producer, or goods and services supplied by firms to household. 


Money Flow

Money flows are the payments made for the goods purchased or the services being provided. For example, Factor rewards and payments for goods and services to producers. 


Note: In exchange for land, labour, capital and enterprise (Factor services), the Firm (Producer) makes payments to the Household in the form of Factor income -rent, wages, interest and profits.


And, likewise, In exchange for the Goods and Services provided by the Producers, the Household makes payments of good and services as Consumption expenditure

SECTORS IN THE COMMUNITY

In our 2 sector circular flow diagrams above we have seen how the two sectors: 1. the Household sector (Consumers) and 2. Firm sector (Producers), are interdependent - they are dependent (rely) on each other to survive.

However, there are a total of five sectors that are dependent on each other to make the economy of a community, or a nation, to grow healthy. They are: 

3. Government sector

The government plays a very important role in the provision of goods and services in Kiribati. The government provides: 

• Public goods – like street light which we society desire to have but private firms are not likely to provide because they would not be able to make a profit out of them. 

• Merit goods – goods which the government or society considers you should have because they are good for you. 

Government spending forms a part of the circular flow diagram. Government spending includes paying teachers’ salaries, maintenance of hospitals, etc. The money that pays for these goods and services comes from taxes. Tax is the government’s main form of revenue. It may be paid directly to the government such as income tax (direct tax) and company tax (indirect tax). 

In the three-sector model, the government is added to the two-sector model. 

4. Financial Sector

Most people save their money for future needs. Their savings are deposited in the Bank or other firms in the financial sector and earn interest. As income increases people tend to save more.

The Financial sectors (Banks, etc) use these savings to grant loans to producers wanting to expand, and may want money to buy machines, or even build new structures, or to buy land, stock, etc. By giving loans to these producers the financial sector is making an investment.

Injection and Withdrawal

To include the Financial sector in the circular flow model you can use a 3 sector model or a 4 sector model. For examples:

5. Overseas Sector

The overseas sector turns a closed economy into an open economy. It is connected to the other sectors through two flows of money:

Like the other sectors, each flow of money is paired with a flow of a factor of production or goods and services 

For example: In the 2sector model at the top "Factor Services" (Goods & Services) is paired with "Factor Income" (Money), and                 "Goods and Services" is paired with "Consumption Expenditure" (Money).

A 5 Sector Circular Flow Model

 Sub-strand 1.3: MARKET EQUILIBRIUM

Specific Learning Objectives

Background information

Consumers desire goods and services (commodities) to satisfy their wants. When this desire involves spending money (spending power) we have what we call Consumer demand. 

Sometimes we can determine the amount of goods and services a consumer is willing to buy. The quantity of the commodity the consumer is willing to buy is called Demand. When the price is low, the consumer is willing to buy more: when the price is high, the consumer will buy less.

This information about Consumer demand and Demand can be represented in a schedule or as a demand curve on a graph.

A. What is an Individual Demand?

A.  Law of Demand

B.  Demand Schedule

A demand schedule is a table or graph that shows the relationship between the price of a product or service and how much of it customers are willing to buy at different prices over a given time period.  For example: When the price hit a top $2.00 per can, the customer considers it expensive and buys only 1 can. But when the price hits a low 25 cents the customer was prepared to buy many cans.

C.  Demand Curve 

A demand curve is the graph that is drawn from the information in the demand schedule.

Below is a Demand Curve graph drawn from the Demand schedule Table above.

 

Lesson Activity 

1. Define the concept of Individual demand.

 2. State the law of demand 

 3. Differentiate between demand schedule and demand curve. 

4.  Use the information given to construct a Demand Schedule.

Christine loves watching movie. She intends to buy more tickets when the price falls. At the price of $3.00 she is willing to buy 5 tickets. When the price increased to $5, she could buy 2 tickets. At the price of $4.50, She has to buy 3 tickets while when the price decreases to $4.00, she is able to buy 4 tickets. 

5.  From the information above, construct Christine’s Demand Curve 

FACTORS AFFECTING DEMAND

The main factor that affects a consumer’s demand is ‘Price’. 

However, in this unit we are going to see what happens when the assumption that no other factors have an effect, no longer applies. The factors (other than price) that affect demand include Preferences, income, price of substitute goods and price of complementary goods. 

A change in demand means that the entire demand curve shifts either left or right. The change is usually caused by the impacts of non-price factors on a consumer. For example:

Preferences: this refers to a consumer's preference or taste. If the consumer really desires a product he/she will buy it irrespective if the price is high. It also means that the consumer will buy more (increase in demand). Another example, if the product is popular, the demand will be high. In both cases the demand curve will shift to the right.

Income: if the consumer has a large income he/she is able to buy more (increase in demand). In this case the demand curve will move to the right. If the customer has a low income the customer will tend to buy less (decrease in demand). Therefore if the demand increases the demand curve will shift to the right: if the demand decreases the demand curve shifts to the left.

Substitute goods: a substitute good or service is a product or service that consumers see as essentially the same or similar-enough to another product. Put simply, a substitute is a good that can be used in place of another.

 The demand curve for substitute goods has a positive slope, indicating that as the price of one product increases, the demand for the substitute product will also increase. 

Complementary goods: are products that increase in value when the demand for relative products increases. For example, if the demand for cell phones increases, the demand for cell phone chargers might also increase.  Another example: if the demand for laptops increases, the demand for laptop cases might also increase.

B. What is Market Demand?

Market demand refers to the total quantity of a product or service that consumers are willing and able to purchase at a given price within a specific market. It represents the collective desire and purchasing power of all potential customers 

In the example on the right you four consumers A, B, C, and D. The Market Demand schedule we can see their collective demand when the price was 50 Rupees was (A+B+C+D) 55kg. And when the price was 60 Rupees the Market Demand was 44kg, and so on.

Using the Market Demand schedule the Market Demand curve can be constructed. On the Y-axis we have the prices and on the X-axis we have the Market Demand (total demand) of the consumers.

Activity: Construct a Market Demand Curve from the given Market Demand Schedule

MARKET SUPPLY

C. What is Market Supply?

Market supply is the total amount of an item producers are willing and able to sell at different prices, over a given period of time e.g. one month.  (Market supply is the horizontal sum across all the individual supply for all sellers in the market).

What is the difference between market supply and individual supply?

Individual Supply is the amount of a commodity that a certain company is willing and able to sell at a specific price during a specific period. Market Supply is the amount of a good that all businesses are willing and ready to offer for sale at a specific price during a specific period.

Market Supply Schedule

A market supply schedule shows the quantity of a good or service that suppliers are willing and able to provide at different prices. It's based on market research and predictions, and can be used to graph a supply curve 

What is a supply schedule example? A supply schedule shows the quantity supplied at each price level. For example, Company A might provide 5 widgets at $1 each, 12 widgets at $3 each, and 20 widgets at $5 each. These combinations can be used to graph the supply curve for Company A. 

Example 2: Look at Table below:

Market Supply Curve

The market supply curve is obtained by adding together the individual supply curves of all firms in an economy. As the price increases, the quantity supplied by every firm increases, so market supply is upward sloping. (A perfectly competitive market is in equilibrium at the price where demand equals supply).

In the Table on the left the quantity of a commodity Producer A is able and willing to buy is 8, while Producer B, 4. These two numbers are added (horizontally as shown on the graphs) and shown on the Market Supply Curve as being in the range of between 2 and 12.

Note: Producers A and B (and maybe others) are individual suppliers, and they are put together to form the 'Market Supply Curve'.

A market supply schedule shows the quantity of a good or service that is supplied at different prices by the entire market. A market supply curve can be constructed from a market supply schedule by adding up the quantities supplied at each price level for all producers in the market:

Activity: Construct the Market Supply Curve from the following market supply schedules

MARKET EQUILIBRIUM

Market equilibrium is a state in which the supply and demand for a product or service are equal. The price at which this occurs is called the equilibrium price, and the quantity is the equilibrium quantity. At the equilibrium price, there is no shortage or surplus because buyers are willing to purchase the same amount that sellers are willing to sell. 

How the equilibrium is determined.

a. First, construct the Market Demand curve (D)

b. Then construct the Market Supply curve (S)

c. Where the curve lines intersect is the Equilibrium. From this intersection you can determine the 'equilibrium price' and the 'equilibrium quantity"