Download 1.2.1-Demand

T HEME 1:
M ARKETING
AND
PEOPLE
How much would you pay for a can of Coca Cola?
• Would you pay 50p?
• Would you pay 80p?
• Would you pay £1.00?
• Would you pay £1.20?
What happens to demand as price goes up?
How much would you pay for a can of Tesco Cola? Is this different
to Coca Cola? Why?
1.2 T HE M ARKET
Edexcel Business
1.2.1 D EMAND
1.2.1 D EMAND

In this topic you will learn about

Factors leading to a change in demand:

changes in the prices of substitutes and
complementary goods

changes in consumer incomes

fashions, tastes and preferences

advertising and branding

demographics

external shocks

seasonality
DEMAND

Low prices see
increased demand for
gold.
Demand is the amount
society is willing and able
to buy at a set price at a
given point in time
T HE DEMAND CURVE
Rules for drawing a demand curve:
i) label the y axis price and the x
axis quantity
ii) draw the demand curve
downward sloping from left to
right and label it demand (or D)
iii) to find the quantity demanded
at any given price:
a) select a price (P),
shown on the y axis
b) draw a dotted line
towards the demand curve
c) draw a dotted line down
D towards the x axis to show
quantity (Q)
Price
P
0
Q
Quantity
T HE
It is important that
you master the
drawing of diagrams in
Business. Marks are
often lost for the
incorrect drawing of
diagrams.
Rules for drawing a demand curve:
i) label the y axis price and the x
axis quantity
ii) draw the demand curve
downward sloping from left to
right and label it demand (or D)
iii) to find the quantity demanded
at any given price:
a) select a price (P),
shown on the y axis
b) draw a dotted line
towards the demand curve
c) draw a dotted line down
D towards the x axis to show
quantity (Q)
Price
P
0
DEMAND CURVE
Q
Quantity
T HE
A change in
price is shown Price
by a movement
along the
demand curve.
P1
DEMAND CURVE
A change in price from P to P1is
shown by a movement along
the demand curve lowering
quantity demanded form Q to
Q1.
P
D
Q1
Q
Quantity
T HE
DEMAND CURVE
A change in price from £10 to
£15 is shown by a movement
along the demand curve with
quantity demanded falling from
100 to 120 units.
Price
£15
£10
D
100
120
Quantity
T HE
Show on the
demand curve
what would
happen if price
fell from P to
P1.
DEMAND CURVE
Explanation of diagram:
Price
P
D
Q
Quantity
FACTORS LEADING TO A
CHANGE IN DEMAND

If a change in demand is caused by a change in price
this is shown by a movement along the demand curve

If the change in demand is caused by a change in any
other factor this is caused by a shift in the demand
curve

What factors other than price will influence demand?
FACTORS
Recap.
What is meant by the
term demand?

LEADING TO A CHANGE IN DEMAND
Factors leading to a change in demand include:

changes in the prices of substitutes and
complementary goods

changes in consumer incomes

fashions, tastes and preferences

advertising and branding

demographics

external shocks

seasonality
C HANGES
IN THE PRICES OF SUBSTITUTES AND
COMPLEMENTARY GOODS

Changes in the price of substitute and complementary goods will have
a major impact on the quantity demanded of a product

A substitute product acts as an alternative, therefore creating
competition

If the price of good A increases, the demand for good B will
increase e.g. Coca-Cola and Pepsi Cola

There is a positive correlation

A complementary product is bought alongside a good or service

If the price of good A increases, the demand for good B will
decrease e.g. fish and chips

There is a negative correlation
Pizza and ice-cream wars.
Explain what is happening in these 2 articles.
IN
PAIRS
For each product give an example of a substitute product and a
complementary product.
Product A
iPhone
Jam
Child’s scooter
Package holiday
abroad
Sunday Times
Substitute
Complement
C HANGES
IN CONSUMER INCOMES

As the income of consumers increases demand for some goods
and services will increase

Does this depend upon the nature of the good?

Necessities

It is less likely that demand for these will change in
relation to income e.g. would you start buying more milk
or less soap if your income changed?

Luxuries

If income increase customers may be able to afford
more luxuries increasing demand , equally if incomes fall
these may be the first items to cut e.g. not booking a
holiday

Inferior goods

If incomes increase demand may decrease as customers
switch to being able to afford a better quality product
e.g. would you stop buying own brand Tesco beans and
start buying Heinz
FASHION , TASTES AND
PREFERENCES
Is ‘Made in
Britain’
back in
fashion?

People’s tastes change over time and demand for fashionable
products changes regularly

As some products become more fashionable there is an
increase in demand
 Just as quickly demand can disappear as tastes and
fashion change

What goods and services have seen an increase in demand in
recent years as a result of changes in fashion, tastes and
preferences?
A DVERTISING AND BRANDING

Advertising is a promotional method that involves the
use of media to communicate with existing and
potential consumers

Purpose is to generate awareness and desire

Branding is a promotional method that involves the
creation of an identity for a business that distinguishes
the firm and its products from competitors

If successful both advertising and branding will lead to
an increase in demand

However if brand reputation is damaged or advertising
gives the wrong message demand can decrease
D EMOGRAPHICS

Demographic factors are the statistical characteristics of
the population, these include for example:

Age

Gender

Ethnic mix

Migration has seen an increase in demand for a wide range
of goods and services e.g. housing, public transport and
healthcare

Demographics also influences the types of products
demanded e.g. changing taste of a more diverse nation and
different demands from an ageing population
E XTERNAL
SHOCKS

External shocks are unexpected events that are
outside of the businesses control but have a direct
impact on the level of demand

Consider how each of the following external shocks
could influence the demand for certain goods and
services:

2008 global financial crisis

Flash floods in the south of the UK

Outbreak of disease e.g. foot and mouth or bird flu
S EASONALITY

Seasonality refers to fluctuations in demand depending upon
the time of year

Seasonality exists because of:


Changes in the weather

Public holidays e.g. Christmas and Ramadan
Consider how seasonality affects the demand for the
following goods and services:

Child care

Fashion

Confectionery

Household utilities

Caravan parks
S HIFTS IN THE DEMAND CURVE


If the change in demand is caused by any factor other
than price then the demand curve shifts

An increase in demand is shown by a shift to the right

A decrease in demand is shown by a shift to the left
What happens to the demand curve if the change in
demand is because of a change in price?

Draw a diagram to illustrate your answer
S HIFTS
Price
Why has there
been an
increase in
demand for
organic food?
IN THE DEMAND CURVE
A change in any factor other than
price e.g. tastes is shown by a
shift in the demand curve. An
increase in demand can be seen
by a shift in the demand curve to
the right from D to D1
D
D1
Quantity
S HIFTS
IN THE DEMAND CURVE
This shows that at price P the
quantity demanded has increased
from Q to Q1.
Price
P
D
Q
Q1
D1
Quantity
S HIFTS
What other
factors
would cause
the demand
curve to shift
to the left?
Price
IN THE DEMAND CURVE
What will happen if there is a
decrease in demand due to
factors other than price e.g. a
decline in population?
Draw a new demand curve and
label it D1.
D1
D
Quantity
Q UICK
TEST
Company A decides to lower prices in order to try and shift
surplus stocks. How would this be shown on a demand
curve?
a)
A movement along the demand curve to the right
b)
A shift of the demand curve to the right
c)
A movement along the demand curve to the left
d)
A shift of the demand curve to the left

Can you explain your answer?
Q UICK
TEST
The diagram opposite shows a shift in
demand for “Milkit ice cream” from D to
D1. What is the most likely cause of this?
Price
D
D1
Quantity
a)
A rise in price of “Milkit ice cream”
b)
A fall in price of “Milkit ice cream”
c)
Closure of a competitor of “Milkit ice
cream”
d)
Poor weather conditions throughout
the summer
Can you explain your answer?
1.2.1 D EMAND

In this topic you have learnt about

Factors leading to a change in demand:

changes in the prices of substitutes and
complementary goods

changes in consumer incomes

fashions, tastes and preferences

advertising and branding

demographics

external shocks

seasonality