Economics Topics and Guidelines

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Baptist Lui Ming Choi Secondary School Mentoring Program 06-07

Topics in economics

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Topics in economics

Teacher: Cheung Lai Ping

Subject: Economics

Target students: Form 4

ContentsTopic One

Demand and Supply

Topic 2

Elasticity of demand and total revenue

Worksheet 1

Topic 3

Economic effects of government intervention—price control

Worksheet 2

Appendix A

Appendix BAppendix C

Appendix D

Appendix E


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Topic 1

Demand and Supply

Teaching focus: describing and explaining the effects of changes on the market price of a good.

Implementation plan

1. Basic economics concepts are described, explained and discussed in early lessons. These concepts

include: demand, supply, quantity demanded, quantity supplied, factors affecting changes in

demand and supply, factors that cause changes in quantity demanded and quantity supplies and

how to show changes and their effects diagrammatically.

2. To make sure that students can clearly distinguish the causes and effects of some events on the

price of a good, some daily examples and analysis will be given to students which require them to

identify the causes and effects. Hopefully, this will mean that students will not make an incorrect

analysis and explanation of the phenomenon as it is observed in daily life (Appendix A).

3. Worksheets will be given to the students to analyse and explain the effects of some events on the

price of a good. In the first two questions, guidance will be given to help students analyse and give

an explanation step by step. For the last two questions, students will have to work independently,

analysing and explaining the situations by themselves (Appendix B).

Students’ performances

Most students are able to analyse and explain correctly with teacher’s guidance. For the questions with

guidance, most students are able to write their analyses correctly (Appendix C). However, when

students have to work independently, only a few students are able to make clear and correct

explanations with appropriate diagrams.Common mistakes made are:

– not knowing what good they are going to analyse. They simply mention that there is a shift in

the demand and / or supply curves. (This happened in question 3.)

– being unable to use the correct terms—mixing up demand with quantity demanded , supply with

quantity supplied .

– not drawing their diagrams so they matched their explanations, eg in their diagrams, the demand

curve shifted to the right, but what they wrote was ‘the demand curve shifts to the left’.

– writing there was a ‘shift to the left’ when demand or supply increases when, in actual fact, the

curve should shift to the right.

How to improve teaching effectiveness

Students’ performances were not very good when they needed to work independently. As students

have to grasp very clearly the differences between the special terms, some simpler exercises could be

prepared for practice beforehand. However, whether this is effective or not, needs to be tested and

observed. On the other hand, the practice of some simpler exercise may not guarantee that students’

performance can be improved because it is an exercise that students need to make use of different

concepts that are new to them. It is easy for students to grasp one simple concept separated from other

concepts. But to combine different concepts and make use of them correctly will be a more difficult

task for most students. From students’ exam, more students are able to make correct answer and draw

proper diagrams. The reason may be that the basic concepts that they learn in this topic will be usedagain and again in the other topics. So through revision, students are able to use the concepts correctly

since they have more time to digest and grasp the concepts (Appendix D).


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Summary of language items in the topic of demand and supply

Students should be able to:

1. correctly use technical terms such as: quantity demanded, quantity supplied, quantity transacted,

2. give definitions such as:

– An individual demand for a good refers to …

– Quantity demanded refers to …

– Supply of a good refers to …

– Quantity demanded is the quantity of a good …

– An equilibrium market price is the price …

– Nominal price is the price of a good expressed in terms of …

– Relative price is the price … in terms of …

– A sales tax is a tax …

– A quota is a limit on the …

3. state the meaning of some important laws such as:

– The law of demand states that …

– The law of supply states that …

4. describe cause and effect, such as:

– An increase in price … will result in a decrease in …

–

A decrease in income will result in a decrease in …– An increase in market demand will result in / lead to …

– An increase in the price of a good leads to an increase in …

5. state the result of a change, such as:

– An effective price floor will create …

– An effective quota will raise …

– A subsidy will lead to …

6. explain the process and effect of a change, such as:

–

When (something happens), demand / quantity demanded for (a good) will increase / decrease,leading to (the result or effect) …

– When the price of a good falls / rises, quantity demanded for a good will increase / decrease. As

demand is elastic / inelastic, percentage change in quantity demanded is larger / smaller than the

percentage change in price, leading to an increase / decrease in total revenue.


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Topic 2


Objectives

Students should be able to:

– state how total revenue (TR) changes when the price of a good rises or falls

– predict how TR would change (increase, decrease or remain unchanged) when sellers increase or

decrease the price of a good

– explain why TR would increase or decrease when price of a good changes

– show changes in TR graphically.

Procedure

1. Introduce meaning of total revenue (TR = P x Q) and how to show it graphically.

2. Illustrate how TR changes when the price of a good changes, including gain in revenue (from

higher price or more quantity transacted) and loss in revenue (from lower price or less quantity

transacted).

3. Explain why TR increases or decreases when the price of a good rises (or falls) and how elasticity

of demand affects the change in TR.

Students’ performance on test

Most students simply made conclusions without giving any reasons. About half of the students were

unable to explain why there is a gain (or loss) in total revenue. They simply mentioned, without

reasoning, that the gain is larger (or smaller) than the loss.

Follow-up work

Extra exercises were given to the students to show them how to explain with proper reasoning.

They were guided in how to make an analysis step by step.

– First, based on the law of demand, price and quantity demanded are inversely related.

– Second, according to the change in price and quantity demanded, explain why there is a gain (or

loss) in revenue.

– Third, using the concept of price elasticity of demand, explain why gain is greater (or smaller) than

loss when price changes.

Students’ responses

When the guided writing exercise was given to the students, they all worked quietly with great

concentration.

Most students were able to give clear explanations. However, when students gave their explanations,

they made mistakes such as: “there is a gain in revenue due to lower price”. According to the

question, the price decreases but some students’ analyses showed that the price of the good rises.

The example in the exercise is the same question as in the test. It was found that students improved

greatly and were able to explain using the concepts of the ‘law of demand’ and ‘elasticity of demand’.Refer to Appendix D for sample responses, which have been chosen so it is possible to compare the

answers made by the same student in the test and in the exercise.


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Reflection

To ensure that students are able to write or give explanations clearly with reasons, some guided

writing exercise can be given beforehand. When students are given guidance on how to make use of

the relevant concepts and explain step by step, they can follow the pattern given and give clear

explanations by themselves.

But such practice is quite mechanical and is only suitable for students who are weak and unable to

give clear explanations on their own. It is also unavoidable that some students are too mechanical and

give answers which are illogical.

To avoid this, perhaps the breaking down of the sentences by, for example, displaying parts of the

sentences on different lines and using brackets and different colours. For example:

A decrease in the price of a good will lead to an increase in quantity demanded for the good.

When demand for the good is elastic,

(the percentage change in quantity demanded) is larger than the {percentage change in price},

and (the gain from more quantity demanded) will be larger than {the loss from a lower price}.

As the gain is larger than the loss, total revenue increases.

Perhaps, it would also help if there is a pattern in the colours used or bold or type of brackets used. For example, is it

possible to have the causes identified in some consistent way and similarly for the consequences? Perhaps the specificcondition, eg if the supply is elastic, could also be identified consistently.


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Worksheet 1


BACKGROUND K NOWLEDGE

Total revenue = price x quantity transacted

Law of demand: An increase (decrease) in price of a good will result in a decrease (increase) in

quantity demanded—ceteris paribus.

EFFECT ON TOTAL REVENUE WHEN PRICE OF A GOOD CHANGES

1. When the price of a good increases:

– quantity demanded decreases

– there is gain in revenue because goods are sold at a higher price

– there is loss in revenue because fewer goods are sold

– change in TR depends on whether gain in revenue is larger or smaller than loss in revenue

2. When the price of a good decreases:

– quantity demanded ………………….………………….………………….……………

– there is loss in revenue because ………………….………………….…………………..

– there is gain in revenue because ………………….………………….………………….

– change in TR depends on ………………….………………….………………….………

………………….………………….………………….………………….………………

– Show the gain and loss in revenue in a diagram. (Label your diagram.)

D

P

0Q

loss

gain


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ANALYSIS

1. When demand for a good is elastic and the price decreases

A decrease in the price of a good will lead to an increase in quantity demanded for the good.

When demand for the good is elastic, percentage change in quantity demanded is larger than the percentage change in price. Gain in revenue due to more quantity demanded is larger than loss

in revenue due to lower price. As gain is larger than loss, total revenue increases.

2. When demand for a good is elastic and the price increases

An ………………….………………….………………….………………….………………….

………………….………………….………………….………………….………………………

………………….………………….………………….………………….………………………

………………….………………….………………….………………….………………………

3. When demand for a good is inelastic and the price decreases

………………….………………….………………….………………….………………………

………………….………………….………………….………………….………………………

………………….………………….………………….………………….………………………

………………….………………….………………….………………….………………………

4. When demand for a good is inelastic and the price increases

………………….………………….………………….………………….………………………

………………….………………….………………….………………….………………………

………………….………………….………………….………………….………………………

………………….………………….………………….………………….………………………

EXAMPLE

Recently, the government approved that the taxi fares could be increase by 18%. However, many taxi

drivers disliked the rise in taxi fares. They complained that such rise in price would even worsen their

income. Use the concept of elasticity of demand and illustrate the situation with the aid of a diagram.

ANSWER

Many taxi drivers disliked the rise in taxi fares and complained

that the rise in price would worsen their income. This is becausethe demand for taxi service is elastic as people can take some

alternatives, such as buses and MTR. A rise in taxi fares will

……………………………………….…………………………

……………………………………….…………………………

……………………………………….…………………………

……………………………………….…………………………

……………………………………….…………………………


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EXERCISE

1. Under what condition will the total revenue of KCRC increase after the introduction of a discount

scheme? Explain with the aid of a diagram.

………………….………………….………………….………………….………………

………………….………………….………………….………………….………………

………………….………………….………………….………………….………………

………………….………………….………………….………………….………………

………………….………………….………………….………………….………………

………………….………………….………………….………………….………………

………………….………………….………………….………………….………………

2. Mr Wong is the owner of a toy shop. He finds that when he raises the price of his toys, total sales

revenue increases too. Explain this phenomenon with the aid of a diagram.

………………….………………….………………….………………….………………

………………….………………….………………….………………….………………

………………….………………….………………….………………….………………

………………….………………….………………….………………….………………

………………….………………….………………….………………….………………

………………….………………….………………….………………….………………

………………….………………….………………….………………….………………


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Topic 3

Economic effects of government intervention—price control

Objectives

Students are able to:

– state the meaning of price ceiling and price floor

– describe how price, quantity transacted and TR are affected when price control (price ceiling and

price floor) is imposed

– use diagrams to show the economic effects of imposing a price ceiling (or price floor).

Procedure

1. Meaning of price ceiling, reasons for imposing the ceiling and how an effective price ceiling is set.

2. Economic effects (effects on price, quantity transacted and TR) when a price ceiling is imposed.

3. Meaning of price floor, reasons for imposing price floor and how an effective price floor is set.

4. Economic effects when a price floor is imposed.

Aids

A worksheet is prepared for the students for drawing diagrams and writing down the results (effects of

price control) that they can find. From the drawings, students can compare easily and recognise the

major differences between price ceiling and price floor.

Students’ performance

They can grasp the concepts more clearly by following teacher’s guidance.

Some of them are still passive and quite dependent on the teacher. Parts of the answer are easily found

in the textbook but some students are unable to make effective use of their textbooks.

When the students are required to find out the changes in TR by using the concept that they have

learnt before, some make the wrong conclusions and draw diagrams that do not match their

explanations. Some students may need time to revise old concepts.

Students are unable to explain why price above equilibrium in the

case of price ceiling is ineffective or why price below equilibrium in

the case of price floor is ineffective. They simply give the result andare unable to explain why. This is not a problem of language.

Instead, it is a problem of poor logical and analytical power.

Some students are still unable to give simple and correct English. For

example, they write “ Price would be set upper than, (or greater

than, below than or above than) equilibrium” instead of writing

“ Price should be set above or higher than equilibrium.”

Students’ feedback

With the worksheet, students grasp the concept more clearly since diagrams help them analyse and

understand what they have to learn. They can also better understand the differences between price

ceiling and price floor and this helps consolidate their learning.

The role of language in cognition is a verycomplex issue. I think we have to be carefulabout saying “This is not a problem of

language”. This is not to say that logic andanalytical reasoning do not play a role. I wouldsuggest that the role of language in economicsis not a simple matter at all. In fact, it seems tome that what is considered simple language ineconomics is actually part of the problem. Itmay be that it is so “simple” that it is difficult toactually understand the economics concept. Ifthat is even partly right, then we would need to

see what kind of language we should use toteach economics more effectively


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Worksheet 2

Government intervention: economic effects of maximum price control (price ceiling)

Meaning of price ceiling

………………….………………….………………….………………….………………

………………….………………….………………….………………….………………

Examples in Hong Kong

………………….………………….………………….………………….………………

………………….………………….………………….………………….………………

Effects on price, quantity transacted and total sales revenue

1. When the price ceiling is set below the equilibrium level, what are the effects on:

– price?

………………….………………….………………

– quantity transacted?

………………….………………….………………

– total sales revenue?

………………….………………….………………

What economic phenomena can be found when the price ceiling is set below equilibrium?

………………….………………….………………….………………….………………

………………….………………….………………….………………….………………

How can the problem of excess demand be solved? Non-price methods of rationing such as:

1.

2.

3.

4.

5.

2. When the price ceiling is set above the equilibrium level, what is the effect on price, quantity

transacted and total revenue? Why?

………………….………………….………………

………………….………………….………………

………………….………………….………………

………………….………………….………………

………………….………………….………………


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Economic effects of minimum price control (price floor)

Meaning of price floor

………………….………………….………………….………………….………………

………………….………………….………………….………………….………………

Examples in Hong Kong

………………….………………….………………….………………….………………

………………….………………….………………….………………….………………

Effects on price, quantity transacted and total revenue

1. When the price floor is set above the equilibrium level, what are the effects on:

– price?

………………….………………….………………

– quantity transacted?

………………….………………….………………

– total sales revenue, which may rise or fall, depending on

elasticity of demand.?

………………….………………….………………

a. When demand is elastic, total revenue

…………………….… because the gain from

………………….…… is ………………….…… than

the loss from ……………………..…… .

b. When demand is inelastic,

………………….………………….…………………

……………………….………………….……………

……………….………………….……………………

……………….………………….……………………

What economic phenomenon results when the price floor is set above equilibrium?

There is excess ……………………..…… as quantity demanded is ……………………..……

………………….………………….………………….………………….…………………….. .

How can the problem of excess supply be solved?

………………….………………….………………….………………….………………

………………….………………….………………….………………….………………

………………….………………….………………….………………….………………

………………….………………….………………….………………….………………


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2. When the price floor is set below equilibrium, what is the

effect on price, quantity transacted and total revenue?

Why?

………………….………………….………………

………………….………………….………………

………………….………………….………………

………………….………………….………………

………………….………………….………………

CONCLUSION

To be effective, a price ceiling must be set at a price ……………………..…… than equilibrium and a

price floor should be set at a price ……………………..…… than equilibrium.

Refer to Appendix E for student responses to this worksheet.


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Appendix A

Worksheet 3

Study the following two tasks and their suggested answers. The answers explain why the price of agood changes or remains unchanged. Identify the cause and result of the changes.

Task 1: Study the following news report.

Last year people were afraid of eating poisonous

seafood. Though the import volume of seafood

decreased, its selling price remained the same.

Explain the phenomenon mentioned in the news report with the aid of a supply-demand diagram.

ANSWER

Since people were afraid of eating poisonous seafood, their demand for seafood decreased and the

demand curve for seafood would shift to the left. As imported volume of seafood decreased, supply of

seafood decreased and supply curve would shift to the left. When the decrease in demand was the

same as the decrease in supply, price of seafood remained unchanged.

DIAGRAM

Task 2. Suppose after the supply of gold increases, gold prices decrease and the quantity transacted

of gold jewellery increases. With the aid of a diagram, explain how the wage rate of gold

jewellery workers would be affected.

ANSWER

The demand for gold jewellery workers is a derived demand from the demand for gold jewellery.

When the quantity transacted of gold jewellery increases, the demand for gold jewellery workersincreases too. As a result, the equilibrium wage rate will increase.

DIAGRAM


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Appendix B

Revision Worksheet

WHAT CAUSES PRICE TO CHANGE

1. Mary said, ‘The higher the price of cosmetics, the lower the quantity demanded.’ Lisa said, ‘The

price of cosmetics and quantity transacted can increase at the same time.’ With the aid of two

separate diagrams, explain why both of their points of view can be correct.

Mary is correct because according to the law of demand, …………………………………………

………………………………………………………………………………………………………

………………………………………………………………………………………………………

Therefore, the higher the price of cosmetics, the ………………….………………….……………

………………………………………………………………………………………………………

Lisa is also correct because when ………………….………………….……………………………

………………………………………………………………………………………………………

………………………………………………………………………………………………………

So the price and the quantity transacted can increase at the same time.

2. In early 2004, bird flu broke out throughout Southeast Asia, and governments in the region ordered

the widespread slaughter of chickens. People were scared of bird flu and ate fewer live chickens.

At that time, there was a sharp increase in the price of live chickens in Hong Kong. With the aid ofa supply-demand diagram, explain how the quantity transacted of live chickens would change.

The widespread slaughter of chickens ………………….…………….

supply curve would ………………….………………….………….. .

As people were scared of ………………….………………….…….. ,

the demand curve would ………………….………………….……. .

Since the ………………….…………………...… is larger than the

………………….………………….………………........................... ,

there was a sharp increase in the price of live chickens in Hong Kong.


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3. With a falling birth rate, the number of school-age children keeps decreasing. On the other hand,

some serving and would-be teachers are joining other industries. Suppose there is a downward

pressure on teachers’ wages, other things being constant. Explain this phenomenon with the aid of

a supply-demand diagram.

4. Digital cameras have become more popular in recent years. If the price of digital cameras falls

because of a great increase in production, how does this affect the price and quantity transacted of

memory cards? Explain this with separate diagrams.


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Appendix C


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Appendix D


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Appendix E


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Economics Topics and Guidelines