2.2 Demand 2.3 Supply

• Demand

  The willingness, and ability to buy a good or service at a given time and price
• Demand curve


  A graph of the relationship between the price of a good and the quantity demanded

  
• Contraction in Demand


  A fall in the quantity demanded due to a rise in the price of good or service.

  
• Expansion in Demand


  An increase in quantity due to a fall in price

  
• Factors of demand (PASIFIC)

  Population

  Advertising

  Substitutes

  Incomes

  Fashion and Trends

  Interest rates

  Complementary goods
• PASIFIC

  P: (population)

  The larger population, the higher the demand

  Different structure of population, such as distribution of different age groups
• PASIFIC

  A: (advertising and branding)

  Is a promotional method that involves there use of media to communicate with existing and potential consumers

  • Purpose to generate awareness & desire

  Branding is a promotional method that involves the creation of an identity for a business that distinguishes the firm and its products from competition

  • If successful, will lead to an increase in demand

  However if brand reputation is damaged / advertising gives message leads to decrease in demand
• PASIFIC

  S: (substitutes)

  A substitute product acts as an alternative, creates competition

  • If price of good A increases, demand for good B will increase
  • As less people will buy good A so there is a positive correlation

  e.g if Product A price falls, substitute product’s demand decreases
• PASIFIC

  I: (incomes of consumers)

  As incomes of consumers increases, demand for some goods and services increases

  Depends of nature of good:

  • Necessities
  • Less likely that demand for necessities will change in relation to income
  • Luxuries
  • If incomes increase customers may be able to afford more luxuries, increasing demand
  • If incomes fall luxuries may be the first items to be out
  • Inferior goods
  • If incomes increase, demand may decrease as customers may switch to being able to afford a better quality product
  • e.g would you stop buying Tesco beans and start buying Heinz
• PASIFIC

  F: (fashion and tastes/trends)

  Peoples’ tastes change over time and demand for fashionable products changes regularly

  More fashionable products means an increase in demand

  • Just as quickly demand can disappear as tastes and fashions change
• PASIFIC

  I: (income tax)

  Lower taxes means consumers have more disposable income, so they have more money to spend, causes right shift of demand

  Higher taxes means consumers have less disposable income, so they have less money to spend, causes left shift of demand
• PASIFIC

  C: (complementary products)

  A complementary product is bought alongside a good or service

  • If the price of good A increases, the demand for good B will decrease as less people will buy good A so there is a negative correlation