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The Nature of Markets - Demand Curves

When looking at markets we use various techniques to help us understand what is going on in the real world. We call these things 'models'.

A model is an attempt to represent, in a simplified way, a very complex process. Markets are very complex things but they do have certain characteristics that we can look at and the model is based on these characteristics.

This next section looks in more detail at how we 'model' markets and how we can use them to make some simple predictions. We will start with demand. We are going to look at demand through a game.

The Demand for Chocolate Bars

Purpose:
A game to show how to draw demand curves and to show how market demand curves can be derived from individuals' demand curves.

Learning Objectives:
At the end of the game, you should understand:

• How individuals' demands combine to create market demand
• How to plot a market demand curve
• How to plot a shift in the demand curve

Requirements:

• Table
• Can of coke
• King-size Snickers bar
• Pint of milk
• King-size Mars bar
• 4 '50p' price labels and '£1' price label (available to print out)

Method:

Stage 1

1. Set up the table as a shop with the four products on top. Place a 50p price label in front of each product.
2. Explain to the students that they have a maximum of £2.50 to spend and can buy any of the products in the shop, in any combination.
3. You can buy any number of one product and do not have to buy all the products. You must spend all of your income.
4. When you have made your decisions, print out and fill in the table below.

Stage 2

1. Now assume that it is a new day and you have consumed all the food you bought yesterday.
2. A global shortage of peanuts has pushed the price of a Snickers bar up to £1. Replace the 50p label in front of the Snickers bar with a £1 label.
3. You still have £2.50 to spend. Make your decisions again. Print out and complete the table below with your new preferences following the price rise.

Stage 3 - Calculating Market Demand

1. Organise yourseleves into groups of 5-6.
2. Work out the market quantities for your group for stages 1 and 2. Do this by adding together the quantities for each product at each price level demanded by each person in your group. An example of how to do this is shown below.

What this represents is the demand for each product - the amount each person would like to purchase at the price stated. By adding together each individual's demand we get the market demand.

3. Print out the blank table below and complete it to show market demand for your group.

We can represent this information in the form of a graph. Price goes on the vertical axis and quantity demanded on the horizontal axis. A guide has been provided for you below.

Plot the quantity demanded of Snickers bars for your group against the price - you will get two points on the graph, one for the quantity demanded when price was 50p and another for the quantity demanded when price rose to £1. Draw a straight line through the two points as shown in the example below.

4. Print out the blank graph below and plot the market demand for Snickers bars for your group.

This game was adapted from an article by Cynthia D. Hill, Department of Economics, Idaho State University - 'A Classroom Game for Developing Market Demand and Demand Elasticities: The Snicker Effect', Classroom Expernomics, Fall 2001.

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