CAIE IGCSE Economics 2.5.1 Causes of price changes
Use demand and supply diagrams to trace how income, production costs, subsidies, weather or global events change equilibrium price and quantity in a market.
- Syllabus
- 2027–2029
- Course
- Economics 0455
Exam points
- Shift demand after an income or preference change and identify the new equilibrium price.
- Shift supply after a cost, subsidy or weather change and identify the new market price.
- Combine simultaneous demand and supply shifts when the final price direction is determinable.
2.5.1—Causes of price changes question 1
Read the source material carefully before answering Question 1.
Source material: Will Germany continue to be a strong economy?
Germany is a country with a trade surplus and a high GDP per head. It also has a budget surplus (government tax revenue greater than expenditure), a high HDI and a low inflation rate.
In recent years, German firms have exported a higher value of goods and services. This has contributed to the growth of world trade, caused partly by a fall in transport costs. A relatively large number of German firms produce both in Germany and in other countries, helped by better communications.
Germany is a major producer and exporter of luxury cars. Demand for luxury cars was influenced in 2018 by increases in incomes in Germany and abroad, a rise in the price of US luxury cars and, in some countries, a fall in the price of petrol.
Improvements in the quality of education and information on job vacancies have made it easier for workers to change jobs in Germany. This greater ability to change jobs has helped to reduce unemployment and to increase the country's output.
Fewer workers in the German car industry are now members of a trade union. As shown in Table 1.1, trade union membership in Germany has declined in recent years.
Table 1.1 selected data on the German labour market 2013-2016
A challenge facing Germany is its ageing population. The effect of an older labour force is uncertain. It may mean firms become reluctant to invest in new technology, but a shortage of young workers may encourage firms to buy more capital goods.
Germany's population may fall and there will soon be fewer Germans aged under 30 than over 60 unless immigration continues at a relatively high rate. Immigration might increase both the country's labour force and its government's spending on education.
Analyse why the price of German luxury cars may have increased in 2018.
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