DHS Price Mechanism and Its Applications

©DHS2025 1 DUNMAN HIGH SCHOOL (SENIOR HIGH) ECONOMICS UNIT 2025 YEAR 5 H1 Theme 2: Markets 2.1 Price Mechanism and Its Applications Section A Check your concepts: Demand 1. Define demand. 2. State the Law of Demand and explain why the demand curve is downward sloping. 3. When a price increases, the law of demand suggests that the quantity demanded will increase / decrease* while the law of supply suggests that the quantity supplied will increase / decrease* . Therefore, the demand curve is upward / downward* sloping while the supply curve is upward / downward* sloping. When the price of a good such as beef decreases, quantity demanded for it will ____________. We say that there exists a/an direct / inverse* relationship between the price and quantity demanded. Now, consider what happens to the demand when, at the same time of the reduction in price of beef, the government launches a healthy lifestyle campaign warning the public about the problems of excessive red meat intake. While the reduction in the price of beef will cause quantity demanded to ________, the healthy lifestyle campaign will cause the quantity demanded to ___________ at each and every price. So when we say that the quantity demanded of a good varies ___________ with its price, we are actually making the assumption of _______________________.

©DHS2025 2 4. Below is a table showing the market demand for green beans. Study the data in the table, and plot the demand for green beans on a graph paper. Label the demand curve “D,” and answer the questions. Demand for Green Beans in a year Price ($/kg) $0.10 $0.15 $0.20 $0.25 $0.30 $0.35 $0.40 Quantity demanded (‘000 kg) 350 300 250 200 150 100 50 Figure 1: The data for demand curve “D” indicate that at a price of $0.30 per kg, buyers would be willing to buy _______ thousand kg of green beans. Other things constant, if the price of green beans increased to $0.40 per kg, buyers would be willing to buy _______ thousand kg. Such a change would be called a(n) increase / decrease* in demand / quantity demanded*. Other things constant, if the price of green beans decreased to $0.20 per kg, buyers would be willing to buy _______ thousand kg. Such a change would be called a(n) increase / decrease* in demand / quantity demanded*. Now let’s suppose that a dramatic increase in income tax rates reduces the disposable income of consumers. This change in the ceteris paribus conditions underlying the original demand for green beans will result in a decrease in demand, and we would have a new set of data such as that shown in the following table. Study the data in the new table, and plot the new demand curve (on the same axes in Figure 1). Label the new demand curve “D1” and then answer the questions below.

©DHS2025 3 Decrease in the Demand for Green Beans Price ($/kg) $0.05 $0.10 $0.15 $0.20 $0.25 $0.30 $0.35 $0.40 Initial quantity demanded (‘000 kg) 400 350