Baptist Lui Ming Choi Secondary School Mentoring Program 06-07

Topics in economics

Topics in economics
Teacher:

Cheung Lai Ping

Subject:

Economics

Target students:

Form 4

Contents
Topic One
Demand and Supply
Topic 2
Elasticity of demand and total revenue
Worksheet 1
Topic 3
Economic effects of government interventionprice control
Worksheet 2
Appendix A
Appendix B
Appendix 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 teachers 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 termsmixing 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 used
again 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
Elasticity of demand and total revenue
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 specific
condition, eg if the supply is elastic, could also be identified consistently.

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Worksheet 1
Elasticity of demand and total revenue
BACKGROUND KNOWLEDGE

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 demandedceteris paribus.
EFFECT ON T OTAL 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
P

gain

loss
0

D
Q

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.)

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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 because
the 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 interventionprice 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 teachers 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 and
are 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

The role of language in cognition is a very

complex issue. I think we have to be careful
about saying This is not a problem of
language. This is not to say that logic and
analytical reasoning do not play a role. I would
suggest that the role of language in economics
is not a simple matter at all. In fact, it seems to
me that what is considered simple language in
economics is actually part of the problem. It
may be that it is so simple that it is difficult to
actually understand the economics concept. If
that is even partly right, then we would need to
see what kind of language we should use to
teach economics more effectively

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.

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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 a
good 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 workers
increases 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 of
a 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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