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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:
Define the circular flow model.
2 Describe the interdependence between household and producers.
3 Differentiate between real flow and money flow.
4 Construct a two sector circular flow model
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:
the Household sector
the Firm sector
the Government sector
the Financial sector, and
the Overseas sector
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.
In this model, money flows from households and businesses to the government in the form of taxes.
The government pays back in the form of government expenditures through subsidies, benefit programs, public services, etc.
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
Injection - when money enters the community, i.e. investment
withdrawal - when money leaves the economy, i.e. saving
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:
Trade (imports and exports) and
Foreign exchange (inflow and outflow of capital).
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
Define individual demand
state the Law of Demand
Differentiate between 'demand schedule' and 'demand curve'
Construct a demand schedule for an individual consumer using a given data
Construct a demand curve for an individual consumer using a given data
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?
is the quantity that a consumer is willing and able to buy at a range of prices
Demand is the consumers willingness AND ability to pay for a particular commodity at a range of prices
Demand differs from Want: Want is the desire for the commodity but with the inability to pay for it.
A. Law of Demand
states that as the price of a commodity decreases, the quantity demanded increases: if the price of a commodity increases the quantity demand decreases.
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:
For each price in the schedule, find the quantity supplied for each individual producer
Add up the quantities supplied by all producers at each price to get the aggregate supply
Plot the aggregate supply on a graph with price on the vertical (Y) axis and quantity on the horizontal (X) axis
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
b. Then construct the Market Supply curve
c. Where the curve lines intersect is the Equilibrium. From this intersection you can determine the 'equilibrium price' (P*) and the 'equilibrium quantity' (Q*).
Activity: Given are Market Demand and Market Supply Schedules, construct the graph to show the equilibrium point of the two schedules.
What is Excess Supply?
Excess supply, also known as a surplus, occurs when the quantity supplied of a product or service exceeds the quantity demanded at a given price level. It indicates that there is more supply available in the market than there is effective demand from buyers.
What is Excess Demand?
Excess demand, also known as shortage, occurs when the demand for a product or service is greater than the amount that can be produced. This happens when the price of a good is lower than the equilibrium price, so more consumers want to buy it than suppliers are willing to sell.
Calculating and illustrating equilibrium using linear equations
Calculating and illustrating equilibrium using linear equations
The market is in equilibrium at Pe, when the amount of that product consumers wish to buy, Qe, is equal to the amount of coffee a producer wishes to sell.
The graph on the right shows:
Excess supply: More is being supplied than demanded at P1 → in order to eliminate the surplus, producers must lower the price
Excess demand: More is being demanded than supplied at P2 → in order to eliminate this shortage, producers must raise the price
Government intervention in the economy
Most governments intervene in the country's economy in three ways:
(i) Price controls in economics are restrictions imposed by governments to ensure that goods and services remain affordable. They are also used to create a fair market that is accessible by all. The point of price controls is to help curb inflation and to create balance in the market.
Inflation is the rate at which prices increase over time, typically across an entire economy. It can be a broad measure, such as the overall increase in prices or the cost of living in a country. Inflation reduces the purchasing power of a currency and the value some assets, meaning that the same amount of money can buy fewer goods and services.
(ii) Tax - A tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities.
There are two types of taxes:
Direct tax - A direct tax is one that the taxpayer pays directly to the government.
Indirect tax - An indirect tax is one that can be passed on-or shifted-to another person or group by the person or business that owes it.
And these taxes are levied on you through the following means:
You are taxed on how much you earn
You are taxed on what you buy, and
you are taxed on what you own
(iii) Subsidies - A subsidy is a direct or indirect payment to individuals or firms, usually in the form of a cash payment from the government. In economic theory, subsidies can be used to offset market failures and externalities to achieve greater economic efficiency.
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