Unit 1 AS Micro Revision

1. AS Micro
The Price Mechanism
in Action

2. These are good connective phrases
by contrast…
A consequence of
this might be …
therefore…
this might
mean…
on the other
hand…this is because

3. Diagrams matter!
Diagram must haves
Fully labeled
Original and new equilibrium
Demand and supply the correct way round
Well explained – you must explain why the
curve has shifted, in detail
Think about the elasticity – e.g. oil has
inelastic demand and supply

4. Functions of the Price Mechanism
1. Allocate – the market mechanism allocates
scarce resources
2. Ration – prices serve to ration scarce resources
when demand outstrips supply
3. Signal – market prices adjust to demonstrate
where resources are required, and where they
are not.
4. Incentive – when the price of a product rises,
the quantity supplied increased, this is due to
the incentive function

5. Shift Equilibrium Price
Demand increases Higher
Demand decreases Lower
Supply increases Lower
Supply decreases Higher

6. Shift Equilibrium Price Equilibrium Quantity
Demand increases Higher Higher
Demand decreases Lower Lower
Supply increases Lower Higher
Supply decreases Higher Lower

7. Which direction?
Market Change Shift in Supply
or Demand?
Rise or Fall in
Market Price for
Crude Oil?
A deep recession in many of
the world’s advanced
economies
OPEC decides to introduce
lower output quotas for each
of their members

8. Which direction?
Market Change Shift in Supply
or Demand?
Rise or Fall in
Market Price for
Crude Oil?
A deep recession in many of
the world’s advanced
economies
DEMAND
OPEC decides to introduce
lower output quotas for each
of their members

9. Using an analysis diagram
Price of
crude oil
Quantity of crude oil
D1
S1
P1
Q1

10. Using an analysis diagram
Price
Quantity of crude oil
D1
S1
P1
Q1
D2

11. Using an analysis diagram
Price
Quantity of crude oil
D1
S1
P1
Q1
D2
P2
Q2

12. Which direction?
Market Change Shift in Supply
or Demand?
Rise or Fall in
Market Price for
Crude Oil?
A deep recession in many of
the world’s advanced
economies
DEMAND
OPEC decides to introduce
lower output quotas for each
of their members
SUPPLY

13. Using an analysis diagram
Price
Quantity of crude oil
D1
S1
P1
Q1

14. Using an analysis diagram
Price
Quantity of crude oil
D1
S1
P1
Q1
S2

15. Using an analysis diagram
Price
Quantity of crude oil
D1
S1
P1
Q1
S2
Q2
P2

16. The effects of high oil prices
Oil
Industry
• Exploration
& Drilling
• Investment
Consum
ers
• Cost of living
• Real
incomes
Related
sectors
• Oil
substitutes
• Oil supply
chain
industries

17. Stakeholders
Groups who benefit from high
oil prices
Groups who lose out from high
oil prices
Oil companies themselves
Industries supplying petroleum
businesses
Oil exporting nations
Government – oil taxes
Renewable energy industry

19. Stakeholders
Groups who benefit from high
oil prices
Groups who lose out from high
oil prices
Oil companies themselves
Consumers of products that
uses oil as essential input
Industries supplying petroleum
businesses
Transport businesses e.g.
airlines, road haulage
Oil exporting nations
Consumer goods businesses
(less real income to spend)
Government – oil taxes
Higher oil prices brings in extra
revenue
Renewable energy industry

20. The Global Market for Aluminium

21. Shifts in supply & demand
Market Change Shift in Supply
or Demand?
Rise or Fall in
Market Price for
Aluminium?
A fall in demand for new long-haul
aircraft
Tighter fuel-efficiency standards for new
vehicles in the USA
A persistent fall in the world price of
steel
A rise in the price of bauxite (used in
manufacturing aluminium)

22. Shifts in supply & demand
Market Change Shift in Supply
or Demand?
Rise or Fall in
Market Price for
Aluminium?
A fall in demand for new long-haul
aircraft
DEMAND FALL
Tighter fuel-efficiency standards for new
vehicles in the USA
A persistent fall in the world price of
steel
A rise in the price of bauxite (used in
manufacturing aluminium)

23. Shifts in supply & demand
Market Change Shift in Supply
or Demand?
Rise or Fall in
Market Price for
Aluminium?
A fall in demand for new long-haul
aircraft
DEMAND FALL
Tighter fuel-efficiency standards for new
vehicles in the USA
DEMAND RISE
A persistent fall in the world price of
steel
A rise in the price of bauxite (used in
manufacturing aluminium)

24. Shifts in supply & demand
Market Change Shift in Supply
or Demand?
Rise or Fall in
Market Price for
Aluminium?
A fall in demand for new long-haul
aircraft
DEMAND FALL
Tighter fuel-efficiency standards for new
vehicles in the USA
DEMAND RISE
A persistent fall in the world price of
steel
DEMAND FALL
A rise in the price of bauxite (used in
manufacturing aluminium)

25. Shifts in supply & demand
Market Change Shift in Supply
or Demand?
Rise or Fall in
Market Price for
Aluminium?
A fall in demand for new long-haul
aircraft
DEMAND FALL
Tighter fuel-efficiency standards for new
vehicles in the USA
DEMAND RISE
A persistent fall in the world price of
steel
DEMAND FALL
A rise in the price of bauxite (used in
manufacturing aluminium)
SUPPLY RISE

26. Shifts in supply & demand
A fall in demand for new long-haul
aircraft
DEMAND FALL
Price of
Aluminium
Demand
Supply
P1
Q1 Quantity of
Aluminium

27. Shifts in supply & demand
A fall in demand for new long-haul
aircraft
DEMAND FALL
Price of
Aluminium
Demand
Supply
P1
Q1 Quantity of
Aluminium
D2

28. Shifts in supply & demand
A fall in demand for new long-haul
aircraft
DEMAND FALL
Price of
Aluminium
Demand
Supply
P1
Q1 Quantity of
Aluminium
D2
P2
Q2

29. Shifts in supply & demand
Price of
Aluminium
Demand
Supply
P1
Q1 Quantity of
Aluminium
D2
P2
Q2
A rise in the price of bauxite (used in
manufacturing aluminium)
SUPPLY RISE
S2

30. Shifts in supply & demand
Price of
Aluminium
Demand
Supply
P1
Q1 Quantity of
Aluminium
D2
P2
Q2
A rise in the price of bauxite (used in
manufacturing aluminium)
SUPPLY RISE
S2
P3
Q3

31. Price of
Aluminium
D1
S1
P1
Q1Quantity of
Aluminium
Price of
Pepsi Max
Di
Si
Pi
QiQuantity of
Pepsi Max
Inter-related markets

32. Price of
Aluminium
D1
S1
P1
Q1Quantity of
Aluminium
Price of
Pepsi Max
Di
Si
Pi
QiQuantity of
Pepsi Max
Inter-related markets
D2
P2
Q2

33. Price of
Aluminium
D1
S1
P1
Q1Quantity of
Aluminium
Price of
Pepsi Max
Di
Si
Pi
Qi Quantity of
Pepsi Max
Inter-related markets
D2
P2
Q2
Sii
Pii
Qii