1.2 The market - sections
1.2.1 Demand
1.2.2 Supply
1.2.3 Markets
1.2.4 Price elasticity of demand
1.2.5 Income elasticity of demand
1.2.1 Demand - syllabus
Candidates should be able to:
• Define demand
• Explain how a change in price causes a
movement along a demand curve
• Assess factors which may cause a shift
in the demand curve (changes in price of
substitutes/complementary goods;
changes in consumer income; fashions,
tastes and preferences, demographics,
external shocks and seasonality).
Definitions: market and demand
What is a market?
A market is wherever there are
Buyers d________ goods from the market
whilst sellers s_________ goods.
Demand is the amount that consumers are
willing and able to buy at a given price.
Effect of change in price on demand
What happens to the quantity demanded as
prices fall?
What happens to the quantity demanded as
prices rise?
The ‘law of demand’
The ‘law of demand’ states that as a good’s
price falls, the quantity demanded ________
so there is an inverse relationship between
price and quantity demanded.
Similarly as the price rises, a _____ quantity
is demanded.
Note that a very low price may be perceived
as low quality
FT increased prices from £1 to £2.50 and…
Slope of a demand curve
Why do demand curves slope down?
Movement along a demand curve
The level of demand determines where on
the graph it sits
i.e. low demand is near to the origin and
high demand is further away.
A movement along a demand curve only
occurs when there is a change in the
__________ of the good
Shifting demand curves
Changes in any of the factors other than
price causes the demand curve to shift:
Left (less demanded at each price) or
Right (more demanded at each price)
Price
Quantity
What factors shift the demand curve?
What can firms do to influence these factors?
Changes in consumer incomes –
Advertising and branding –
Prices of substitute goods –
Prices of complementary products –
Change in tastes/fashion/health –
Demographics –
Seasonality –
External shocks
Demand risks
Andrew and Debbie Keeble won a £5million
order from Tesco for their Heck sausages.
This accounts for 75% of their sales. What
is the problem?
New businesses often suddenly experience
very high demand. What is the problem?