Stage 1

You have £2.50 to spend. You can buy any of the products in any combination, but you must make sure you spend all of your £2.50. You may not spend more than £2.50. Complete the table below.

Stage 2

Today is a new day and you have consumed all the food you bought above yesterday - you have no food at all at the moment.

A global shortage of peanuts has pushed the price of a Snickers bar up to £1. All other product prices remain the same. You still have £2.50 to spend (which you must spend all of). Complete the table below with your new shopping list.

Stage 3 - Calculating Market Demand

Add together the requests from each individual in your group for each product in stages 1 and 2. This will give you the Market Demand for each product. Complete the table below.

You can now see the Market Demand for Snickers bars at each of the prices in stages 1 and 2. Draw the demand curve for Snickers bars below. Draw a straight line through the two co-ordinates on the graph.

Can you estimate how many Snickers bars would have been demanded if the price of Snickers was:

• 75p
• 25p
• 90p

What sort of relationship exists between price and quantity demanded?

Stage 4 - Introducing Price Elasticity of Demand

You can now see responsiveness of quantity demanded to a change in price for Snickers bars. Calculate the Price Elasticity of Demand using the formula:

Hint: To calculate a percentage change, divide the change in the value of a variable by the initial value, then multiply by 100. For example, if demand for cans of coke rises from 7 to 10, then the change in value is 3. Dividing 3 by 7 (the initial value) gives 0.43. Multiplying by 100 gives 43%.

Stage 5

It is now Day 3 and the peanut crisis has eased. Snickers bars now cost 50p again. You have consumed all the food you bought on Day 2.

The generosity of the government has provided all students with a grant and they now have £4 to spend. Complete the table below with your new shopping list, ensuring you spend all of your £4.

Stage 6 - Introducing Income Elasticity of Demand

Complete the table below to show market demand for Snickers bars in stages 1 and 5. Make sure you add up the demand from individuals in your group. This shows the difference in market demand at different income levels.

You can now see the Market Demand for Snickers bars at the different income levels in stages 1 and 5. Draw the demand curve for Snickers bars below.

You can now see responsiveness of quantity demanded to a change in income for Snickers bars. Calculate the Income Elasticity of Demand using the formula:

Stage 7 - Introducing Cross Price Elasticity of Demand

Take another look at the table above under 'Stage 3 - Calculating Market Demand'. What happened to the quantities demanded of the other goods when the price of Snickers bars increased? The responsiveness of quantity demanded of one product to a price change in a related product is known as the Cross Price Elasticity of Demand and can be calculated using the following formula:

Calculate the Cross Price Elasticity of Demand for cans of coke, pints of milk and Mars bars, and plot the shift in the demand curve on the templates below.

Cross Price Elasticity of Demand for cans of coke

Cross Price Elasticity of Demand for pints of milk

Cross Price Elasticity of Demand for Mars bars