1. 1.2 The Market 1.2.1 Demand Theme 1: Marketing 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 The Market Demand
Edexcel Business

2. 1.2.1 Demand 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

3. demand
Demand is the amount society is willing and able to buy at a set price at a given point in time
Low prices see increased demand for gold.

4. The demand curve Rules for drawing a demand curve:
label the y axis price and the x axis quantity
draw the demand curve downward sloping from left to right and label it demand (or D)
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 towards the x axis to show quantity (Q)
Price
Quantity D P Q

5. The demand curve Rules for drawing a demand curve:
label the y axis price and the x axis quantity
draw the demand curve downward sloping from left to right and label it demand (or D)
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 towards the x axis to show quantity (Q)
It is important that you master the drawing of diagrams in Business. Marks are often lost for the incorrect drawing of diagrams.
Price
Quantity D P Q

6. The demand curve
A change in price is shown by a movement along the demand curve.
Price
Quantity D P1 Q1 P Q
A change in price from P to P1is shown by a movement along the demand curve lowering quantity demanded form Q to Q1.

7. The demand curve Price Quantity D £15 100 £10 120
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.

8. The demand curve Explanation of diagram:
Show on the demand curve what would happen if price fell from P to P1.
Price
Quantity D P Q

9. 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?

10. Factors leading to a change in demand
Recap.
What is meant by the term 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

11. Changes 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.

12. In pairs
For each product give an example of a substitute product and a complementary product.
Product A
Substitute
Complement
iPhone
Jam
Child’s scooter
Package holiday abroad
Sunday Times

13. Changes 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

14. Fashion, tastes and preferences
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?
Is ‘Made in Britain’ back in fashion?

15. Advertising 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

16. Demographics
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

17. External 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

18. Seasonality
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

19. Shifts 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

20. Shifts 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
Price
Quantity D D1
Why has there been an increase in demand for organic food?

21. Shifts in the demand curve
This shows that at price P the quantity demanded has increased from Q to Q1.
Price
Quantity D D1 P Q Q1

22. Shifts 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.
What other factors would cause the demand curve to shift to the left?
Price D1 D
Quantity

23. Quick 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 movement along the demand curve to the right
A shift of the demand curve to the right
A movement along the demand curve to the left
A shift of the demand curve to the left
Can you explain your answer? A

24. Quick 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?
A rise in price of “Milkit ice cream”
A fall in price of “Milkit ice cream”
Closure of a competitor of “Milkit ice cream”
Poor weather conditions throughout the summer
Price
Quantity D D1 C
Can you explain your answer?

25. 1.2.1 Demand 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