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Business AS CIE

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  1. enterprise as
    6 主题
  2. business-structure as
    6 主题
  3. size-of-business as
    3 主题
  4. business-objectives as
    3 主题
  5. stakeholders-in-a-business as
    2 主题
  6. human-resource-management as
    8 主题
  7. motivation as
    4 主题
  8. management as
    2 主题
  9. the-nature-of-marketing as
    7 主题
  10. market-research as
    3 主题
  11. the-marketing-mix as
    6 主题
  12. the-nature-of-operations as
    3 主题
  13. inventory-management as
    2 主题
  14. capacity-utilisation-and-outsourcing as
    1 主题
  15. business-finance as
    2 主题
  16. sources-of-finance as
    3 主题
  17. forecasting-and-managing-cash-flows as
    1 主题
  18. costs as
    4 主题
  19. budgets as
    1 主题
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Exam code:9609

Factors influencing demand

  • Demand refers to the number of goods or services customers are willing and able to buy at a given price

  • There is an inverse relationship between the quantity demanded by customers and price 

    • As price increases, the quantity demanded decreases

    • As price decreases, the quantity demanded increases

    • Hence the demand curve slopes downwards from left to right

  • This is illustrated in the diagram below

A simple demand curve

Graph showing a demand curve with price on the vertical axis and quantity on the horizontal axis. Points A, B, and C indicate demand changes.
A demand curve showing how a change in price will lead to a change in quantity demanded (QD)

  • An increase in price from £10 to £15 leads to a movement up the demand curve from point A to B

    • Due to the increase in price, the quantity demanded (QD) has fallen from 10 to 7 units

  • A decrease in price from £10 to £5 leads to a movement down the demand curve from point A to point C

    • Due to the decrease in price, the QD has increased from 10 to 15 units

Factors leading to a change in demand

  • A change in price leads to a movement along the demand curve

  • However, a change in any other factors affecting demand will shift the entire demand curve to the left or right

    • These are called non-price factors affecting demand

Non-price factors affecting demand

Diagram showing non-price factors affecting demand, including fashion changes, goods prices, advertising, income changes, seasonality, shocks, demographics.
The non-price factors affecting demand result in a shift of the entire demand curve 

  • For example, if a firm increases its Instagram advertising, there will be an increase in demand as more consumers become aware of the product

    • This is a shift in demand from D to D1. The price remains unchanged at £7 but the demand has increased from 15 to 25 units

Illustreating changes in non-price factors

Graph showing the demand curve shifts. Axes labelled Price (£) and Quantity. Initial curve D shifts right from D2 through D to D1, with price marked at 7.
A change in any non-price factor will lead to a change in the position of the demand curve

  • The initial demand curve is seen at D

    • At a price of £7, 15 units are demanded

  • If price remains constant at £7 but demand decreases due to one of the non-price factors of demand (e.g. decreasing incomes), the entire demand curve shifts to the left from D to D2

    • Demand has decreased from 15 units to 5 units

  • If price remains constant at £10 but demand increases due to one of the non-price factors of demand (e.g. increased advertising expenditure), the entire demand curve shifts to the right from D to D3

    • Demand has increased from 15 units to 25 units

Non-price factors affecting demand

Non-price Factor

Explanation

Example

Change in the price of substitutes

  • Substitute goods are replacement goods, e.g. different brands of car

  • If the price of VW cars increases, demand for Ford cars might rise

  • This shifts the demand curve for Ford cars to the right

Change in the price of complementary goods 

  • Complementary goods are goods that are consumed together 

  • Cars and petrol: if the price of petrol rises, the demand for cars may fall

  • This shifts the demand curve for cars to the left

Change in consumer incomes

  • As a consumer’s income rises, demand for normal goods) increases

  • Demand for branded goods, e.g. Superdry hoodies, tends to increase as consumer incomes rise

  • This shifts the demand curve for branded goods to the right

  • As a consumer’s income falls, demand for inferior goods) increases

  • Demand for own label products, e.g. supermarket hoodies, tends to rise as consumer incomes fall

  • This shifts the demand curve for own label goods to the right

Fashions, tastes and preferences

  • If products become more fashionable, demand them increases

  • Plant based foods have become more popular in recent years

  • This shifts the demand curve for plant based foods to the right

Advertising and branding

  • If more money is spent on advertising or branding, then this increases consumer awareness and brand loyalty

  • Coca Cola spends an average of $4bn per year on advertising and branding

  • This shifts Coca Cola’s demand curve to the right and makes demand more price inelastic

Demographics

  • If the structure or size of a country’s population changes, then the demand for products will also change

  • A decrease in the number of babies being born will reduce the demand for baby products

  • This shifts the demand curve for baby products to the left

Seasonality

  • Demand varies at different times of the year

  • In cold climates, the demand for gas and electricity will fall in the summer months

  • This shifts the demand curve for energy to the left

External shocks

  • An unexpected event can change the demand

  • The outbreak of Covid-19 lead to panic buying of goods such as toilet rolls 

  • This shifts the demand curve for toilet rolls to the right

Factors influencing supply

  • Supply is the number of goods or services businesses are willing to sell at a given price in a specific time period

  • There is a direct relationship between supply and price 

    • As price increases, the quantity supplied increases

    • As price decreases, the quantity supplied decreases

    • At higher prices, businesses are incentivised to supply more of the product

    • Hence the supply curve slopes upwards from left to right

A simple supply curve

Graph showing supply curve S, with points A, B, C. A-B indicates extension in quantity supplied, A-C indicates contraction. Price and quantity axes.
A supply curve showing how a change in price will lead to a change in the quantity supplied (QS)

  • An increase in price from £7 to £9 leads to a move up the supply curve from point A to B

    • Due to the increase in price, the quantity supplied (QS) has increased from 10 to 14 units

  • A decrease in price from £10 to £7 leads to a movement down the supply curve from point A to point C

    • Due to the decrease in price, the quantity supplied (QS) has decreased from 10 to 7 units

Factors leading to a change in supply

  • A change in price causes a movement along the supply curve

  • A change in any other factor affecting supply will shift the entire supply curve to the left or right

    • These are called non-price factors affecting the s

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