1.2.1 Demand

• Demand measures number of products customers have interest to buy at a given price.
• • Effective demand occurs when customers are willing and able (they have the money) to buy at a given price
• There is an inverse relationship between the quantity demanded by customers and the price.

  Eg As price increases, quantity of demand decreases.
• 2 competitors can be substitutes for each other. Success of one is at the expense of the other.
• Complementary goods - where sales of one have a positive effect on sales of the other.
• Change in consumer income

  • consumer income rises - demand for normal goods rises.
  • consumer income falls - demand for inferior goods increases.
• Substitutes goods are replacement goods
• Fashion, tastes & preferences

  • Difficult to manage - always changing.
  • Products become more fashionable = demand increases.
  • Brands like Nike are eternally fashionable = charge higher prices.
• Advertising & Branding


  • More money is spent on advertising/branding = increases consumer awareness & brand loyalty.
  • Long run = branding more important.
• Demographics


  • Size/structure of population changes - demand changes.
• Seasonality


  • Demand varies at different times of the year.
  • Christmas decorations have more demand in Q4
• External Shocks

  An unexpected event can change the demand.
• Demand Risks

  • Undiversified demand - occurs when business is dependent on just one product.
  • Solution is to diversify - spread risk by finding new sources of demand.
• Demand Risks

  • Overtrading - small businesses grows too fast - don't generate enough cash to meet rising bills & rising demand.
• If price decreases, there is an extension in demand.