BMI4001M Principles of Applied

Economics

Week 2: Demand and Supply

Dr Silvia Szilagyiova
Contact: s.szilagyiova@yorksj.ac.uk
In Lecture 2 we discussed
• The law of Demand and Supply
• Applications of the law
• Effect of taxation on demand and supply
• Maximum and minimum prices
• The effect of subsidies
Demand & Supply
D = demand
D = 500 – 30p S = supply
S = 200 + 8p P = Price
Calculate quantity demanded and quantity
supplied at price 10
Calculate equilibrium price
Calculate equilibrium quantity
Demand & Supply
• Suppose the equation for demand can be expressed as D = 1200 –
10P.
1.Calculate D for price: 10, 20, 30, 40, 50
2.Draw the demand curve

Assume movement along the curve and explain what happens in the
market
Assume shift in the curve (different reasons) and explains what
happens in the market.
Introduction to Substitutes and complementary goods

• Two goods are substitutes if one good may replace the other in use
• examples: tea & coffee, butter & margarine
• Two goods are complements if they are used together
• examples: coffee & cream, fish & chips
 How is this principle used in business?
Substitutes and Upselling
Let’s say you would like to buy iPhone 5

Original

Substitutes
(upsell)
• You know that you’re upselling – trying to replace one product that is
about to be selected with an alternative product – when your customer
is considering substitute products.
• Let’s say Product A and Product B are substitute goods. You can increase
the sale of Product A (e.g. Product A is more expansive thus creates
more revenue) by discourage the consumption of Product B (e.g. put
higher price).
 Complementary goods and cross-selling
Complementary goods

What’s especially clever is that there is no discount – the total price is the same as the sum of
the prices if purchased individually.

You can take advantage of the complementary product model to create product bundles,
identifying products that should be sold together.
In summary..
• Complementary Products – consider cross-selling an additional
product. Complements are usually asymmetrical.
• Substitute Products – an upsell is a suggestion to replace the original
product with an alternative product. Substitutes are symmetrical, but
only in a context where both products address the relevant needs of
your customer.
Your turn
In group, think of an example of complementary goods and
substitutes.
How would you use up-selling and cross-selling to increase
your sale?
Let’s test your knowledge
• If Jackie's income rises, what happens to her demand for airplane trips? If the
income of most consumers of air travel rises (and air travel is a normal good),
what will happen to the market equilibrium price P and quantity Q of this
good?
P RISES, Q RISES
• If the taste for sneakers severely declines, what happens to their price and
the quantity sold?
P DECREASES, Q DECREASES
• If the price of materials used to make sneakers rises sharply, what happens to
the price and the quantity sold of sneakers?
P RISES, Q DECREASES
• Consider the supply and demand for coffee in London. Suppose the
price of tea rises sharply. If coffee is a substitute good for tea, what
happens to the price and quantity of coffee?
P RISES, Q RISES
• Incomes increase. In a graph of the market for bus rides (an inferior
good) we would expect:
a. The demand curve to shift to the left
b. The demand curve to shift to the right.
c. The supply curve to shift upwards.
d. The supply curve to shift downwards.
e. Neither the supply nor the demand curve shifts.
• The price of computer memory chips increases. In the market for
computers, we would expect to see:
a. The demand curve to shift to the left
b. The demand curve to shift to the right.
c. The supply curve to shift upwards.
d. The supply curve to shift downwards.
e. Neither the supply nor the demand curve shifts
Subsidy and taxes

• Think of an example and

• Discuss the advantages and disadvantages of subsidy

Reflective writing is about
contextualising and
questioning your experiences.
A reflective essay isn’t just
about the final assignment;
the process of writing helps
you to achieve a better
understanding of your
decisions and feelings, so you
improve your practice in the
future.
Reflection
Reflective thinking also helps
you build connections
between theory and practice.
experiences and the situations
You will often be asked to
engage with theory, research
and professional guidance to
help you bridge the gap
between your individual
in which those experiences
took place. Critical thinking is
at the heart of reflection – in
the same way you question
academic sources, question
your own experiences.
 Driscoll (2007) reflection model

What So what Now what

Driscoll, J.J. (2007) Supported reflective learning: the essence of clinical supervision? Chp 2
in Practising Clinical Supervision: A Reflective Approach for Healthcare Professionals (2nd
edition). London: Bailliere Tindall. Pp 27-‐50.
 What?
Start with describing the experience. What were you asked to
do? What were you researching?
Example:
In this assignment I was asked to work in a team and see how
long we could keep a balloon in the air. We needed to work
out where to stand and who was best at keep-it-up. We had
to talk to each other and understand our different skills.
Action
Purposefully reflecting on aspects of the experience. Select
parts of your experience that were challenging. This will be
individual from student to student. For example, perhaps it
was teamwork, data search, writing, analysing data or
applying the concepts you were taught.
Example:
I have always struggle with sharing my ideas so I felt like I was
letting the team down. The team supported me to work on
my skills and build my confidence, but I am still a bit nervous
about it.
 So What?
Analyse the experience. Reflect on the steps you have taken.
In other words, what did you do?
Action
Discovering what learning arises from the reflection. Share
the action you have taken to overcome the
challenge/challenges
Example:
The deadline was approaching, and I was becoming more
nervous about the task. I submitted draft of my work where I
received feedback, confirming my writing style is still too
descriptive. I contacted study skills and visited the resources
to help me with my writing. I was able to realise why my
writing is predominantly too descriptive. I tried to
overexplain and wrote everything I could find on the topic.
The study skills team taught me few methods I can use to
organise my thoughts/arguments and develop them in more
depth. I found approach developed by XYZ (year) particularly
helpful. – say more about the approach.
 Now What?
Following the description and analysis of the experience,
propose actions for improvements
Action
Implementing new learning in the next learning experience
(e.g. next assessment, placement, internship or graduate
job).
Example:
I knew economic developments affect the businesses, but I
now understand how these are used in real world. I always
thought understanding economic principles is only important
for economists, but the assignment helped me to develop my
analytical skills which I will need in finance. My data
gathering skills have improved, I am now able to complete
the search more effectively and I am more confident in
interpreting my findings without being too descriptive. To
enhance my skills, I would like to become more confident
working with excel document
Task
Using your knowledge of factors affecting the demand, analyse the demand for Pet
Insurance in the UK.

- the task needs to be completed as a group (your assessment group)

- you will share your ideas/findings with the class next week. You can share the
ideas in any form: PowerPoint presentation, poster or talk.
- you will need to research the market, perhaps look at the data. You are free to
select any appropriate approach that will help you to complete the task.
- each member of the team will write a draft reflection on the task, with focus on
questions: What and So What. Please bring reflection to next week seminar.
 What type of market is it? (is it operated by one large company or

Things you may

many?)

want to What is the trend in pets' insurance from demand perspective? Is

it increasing/decreasing? Maybe look at the estimate growth of

investigate pet owners and data on pet insurance policies, are they growing
at the same rate?

Investigate the factors affecting the demand (check the lecture

slides if you do not remember)

You may want to look at the price as well ( average price) and how
it may affect demand.
Questions?