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?