A Level Business (Edexcel) 1.2 UNFINISHED

What is Demand?

The quantity that customers are willing to buy at a certain price and time period

What does the Basic Law of Demand State?

Demand varies inversely w/price

• High demand = low price

• Low Demand = high price

SIMPLE DEMAND CURVE GRAPH

What can cause Change in Demand? (7 things)

1. Price

2. Income levels

3. Wants and needs change

4. Advertising and bradnding

5. Demographic change 

6. External shocks - natural disasters etc.

7. Seasonal Factors e.g. Christmas time

What is a Seasonal Factor?

A factor that takes into what time of the year makes the most sales:

• At Xmas you will get high demand for wrapping papers and Xmas trees

• At easter more easter eggs are bought due to a high demand for them

• Things like birthday cards aren’t prone to this factor

What is the Income Effect of a price change?

• Fall in price = more purchasing power for consumers

• So consumers buy more in a given budget

• For normal goods, demand rises w/income increases

What is the Substitution effect of a Price Change?

• A fall in price of Good X makes it cheaper than to its substitutes

• Some customers will switch to Good X, so higher demand

• But this depends on how close Good X is a close substitute 

What is an Inferior Good?

A good whose demand decreases as income levels decrease:

• Consumers buy more higher quality substitutes when income levels rise

• So demand for inferior goods inversely relates to income

  • So if demand falls, consumer income rises

  • If demand rises, consumer income levels fall