Practise exercises

 Introduction

I find that many IB students will often confuse the factors that change supply with demand.  I find a common example of this is the impact of tax, with students mixing the impact of a change in income tax (change in demand) with the impact of a change in sales taxes, which effect supply through a change in production costs. This page contains three short exercises for your classes to practise on - they may not need all three of course.

Lesson time: 1 hour, although this depends on how many of the activities that your classes complete.

Opening question on Samsung

Where do Samsung manufacture their smart phones? 

The response may surprise you.  I suspect many of you will have said either South Korea or China - after all Samsung is a South Korean company and isn't everything manufactured in China?  In actual fact only 8% of their smart phones are actually made in South Korea while around a quarter are made in China.  The company is even planning to scale down its Chinese production because of rising labour costs in the country.  Instead 50% of the phones are made in Vietnam with the remainder manufactured in India, Brazil and Indonesia.

Activity 1

The following examples all relate to possible changes in either the supply or demand for Samsung LCD televisions in Istanbul, Turkey.  These goods are manufactured in South Korea and distributed in Turkey.  Illustrate any change to the market after the following examples:

1. A rise in income levels in Turkey

A right shift in the demand curve (i.e. a rise in demand) as consumers spend their higher disposable incomes on luxury goods and services.

2. A rise in oil prices.

A fall in supply, represented by a left shift in the supply curve as the rising oil prices make it more expensive to manufacture televisions.  Therefore, at every price Samsung will be less willing and able to produce televisions.

3. A successful advertising campaign by the Turkish government to purchase locally made goods rather than foreign products.

A left shift in the demand curve (i.e. a fall in demand) as consumers spend more of their disposable incomes on Turkish made goods and services and less on imported ones.

4. A fall in the popularity of Korean products?

A left shift in the demand curve (i.e. a fall in demand) as consumers spend less of their disposable incomes on Korean made goods and services such as Samsung TVs.

5. A fall in world wide aluminium prices?

A rise in supply, represented by a right shift in the supply curve as the fall in aluminium prices makes it cheaper to manufacture televisions.  Therefore, at every price Samsung will be more willing and able to produce televisions.

6. A rise in the level of minimum wage in turkey?

This question is tricky as a rise in minimum wage may have an impact on both supply and demand.  The minimum wage has no impact on production in South Korea but their sales outlets will employ Turkish staff on minimum wage.  A rise in wage costs, therefore, increases production costs and reduces supply.  There may also be a rise in demand for the Samsung televisions as low income consumers may spend some of their new wage rise on a new television.

7. A fall in the value of the Turkish Lira relative to the price of Korean Won.

A fall in supply, represented by a left shift in the supply curve as the rising price of Korean Won makes it more expensive for Turkish distributors, earning money in TL, to import televisions from South Korea.  Therefore, at every price they will be less willing and able to sell televisions.

8. A fall in income tax rates in Turkey.

A right shift in the demand curve (i.e. a rise in demand) as consumers spend their higher disposable incomes on luxury goods and services, such as televisions.

9. A rise in the level of Turkish sales taxes.

A fall in supply, represented by a left shift in the supply curve as the rise in sales tax makes it more expensive for Turkish distributors to sell South Korean televisions.  Therefore, at every price they will be less willing and able to produce televisions.

10. An improvement in technology leading to greater productivity levels within Samsung.

A rise in supply, represented by a right shift in the supply curve as the new technology makes it cheaper to manufacture televisions.  Therefore, at every price Samsung will be more willing and able to produce televisions.

The above questions are available as a PDF at:  Activity 1

Activity 2

Using fully labelled diagrams illustrate any changes to the market for each product in the following situations:  

1. The market for bus travel in a city following the opening of a new tram line network?

A fall in demand, shown by a left shift in the demand curve.

2. The market for for luxury cars city following a large rise in disposable income levels?

  A rise in demand, shown by a right shift in the demand curve.

3. The market for bicycles if the price of bicycles went up?

There would be either an extension along the demand curve or a contraction along the supply curve depending on the reason for the price rise.

4. The market for holidays in the Mediterranean following a very warm and sunny summer in Northern Europe?

  A fall in demand, shown by a left shift in the demand curve.

5. The market for tube journeys following a fall in the price of tube journey tickets?

Demand would remain unchanged, though there would be a shift in supply and an extension in demand.

6. The market for new I phones following the high profile launch of a new model?

  A rise in demand, shown by a right shift in the demand curve.

This exercise is available as a downloadable worksheet at:  Activity 2 

Activity 3

Using fully labelled diagrams illustrate any changes to the market for each product in the following situations:      

1. The market for coke if the government places a sugar tax on all fizzy soft drinks?

There will a fall in supply, as production costs rise, leading to a rise in price and a movement along the demand curve.

2. The market for apple Iphones following the launch of a new model by Samsung?

There will a fall in demand, illustrated by a left shift in the demand curve.

3. The market for cars in a nation following a reduction in taxes on imported cars?

There will a fall in demand, illustrated by a left shift in the demand curve.

4. The market for Pepsi following a successful advertising by doctors on the negative impacts of fizzy drinks on children’s health?

There will a fall in demand, illustrated by a left shift in the demand curve.

5. The market for football tickets following a successful world cup campaign by the country’s national team?

There will a rise in demand, illustrated by a right shift in the demand curve.

6. The market for conventional flat screen TVs following the development of a new affordable cinema system for the home?

A rise in supply, as production costs fall, leading to a fall in price and a movement along the demand curve.

 Available as a PDF file at:  Activity 3

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