Final Task - The Nature of Markets

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The Nature of Markets - Final Task

We are going to try and put together all the things we have covered in this resource and do some work with the diagrams to see whether we can predict what might happen to markets in different circumstances.

What happened to petrol prices in the wake of Hurricane Katrina? © Photolibrary Group

Below is a list of situations. See if you can decide what will happen in the market by deciding first whether the situation will affect demand or supply and then which way demand or supply will be affected. You can use the animated diagrams from the previous pages to help you work out what will happen.

Apple decides to increase the price of its iTunes package to £2.50 per download. What do you think will happen to the market for iPods?
A severe frost hits the southern part of Spain badly damaging the blossoms of orange trees. What do you think will happen to the market for oranges?
There is a rise in the average wage of 5%. What do you think will happen to the market for plasma screen TVs?
Sony invests heavily in improving working conditions and organisation in their factories. As a result, output per worker per hour (productivity) of the new PlayStation 3 increases significantly. What do you think will happen to the market for the PlayStation 3?
Taxi owners decide to increase the average price of their fares by 15%. What do you think will happen to the market for public transport like buses?

Just to confirm that this model does have its application in the real world take the recent case of the hurricanes in the USA. The most damaging was Hurricane Katrina, which hit the southern states of Louisianna and Mississippi in August 2005. The storm also caused damage and stopped oil refining at a number of major refineries that are situated on this part of the coast.

Explain what you think would have been likely to have happened to the price of oil and the price of petrol in the aftermath of Hurricane Katrina. Use a supply and demand diagram as part of your explanation.

Did what you predicted would happen actually happen? Look at the graph at What Price? to find out. (http://www.whatprice.co.uk/car/petrol-prices.php)

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