121 Demand AS Edexcel New Specification 2015 Business From the specification
a) Factors leading to a change in demand: changes in the prices of substitutes and complementary goods changes in consumer incomes fashions, tastes and preferences advertising and branding demographics external shocks seasonality Guidance from Edexcel Lesson Objectives To be able to identify and discuss in detail factors that may lead to a change in demand, both price and non-price To be able to answer sample exam questions based on the topic area Starter If this drink was 5 would you buy it?
If this drink was 10p a can would you buy more of it? This should demonstrate that price factors will influence demand. Definition: Demand Demand is the amount of a good that consumers are willing and able to buy at a given price. The amount of a good demanded depends on: the price of the good the income of consumers the demand for alternative goods which could be used (substitutes) the demand for goods used at the same time (complements) whether consumers like the good (consumer taste) 7 Factors that can lead to a change in demand (or why are we not selling anything anymore?)
changes in the prices of substitutes and complementary goods changes in consumer incomes fashions, tastes and preferences advertising and branding demographics external shocks seasonality Lottery winners will the type of products that they demand change now they have won? Recap complementary goods
Demand for one type of good will affect demand for another, purchase is somehow linked, petrol and cars, blu-ray player and blue-ray films Recap substitute goods
The impact of a change in price will cause consumers to switch products to an alternative good.If air fair is too expansive a consumer could switch to a train or simply drive to their destination. Changes in the prices of substitutes and complementary goods
As prices for substitutes and complimentary goods rise this will change the quantity demanded. 49.99 for a hot drinks machine is OK as long as the capsules are cheap enough.3.65 for 16, how much is each coffee? What if they were 1 for 16, would this affect demand for the machines? Changes in consumer incomes
As consumers incomes rise, then the pattern of demand changes. Can you think ofa range of different products that may be bought by each family? How do these lists differ?Think inferior / luxury goods Fashions, tastes and preferences
Fashion Trend- high fashion meets sports Advertising and branding
As products are heavily advertised they may experience an increase in demand. If this did not occur then businesses would not invest in advertising at all. Products in adverts are associated with other things we already have a positive feeling about (see video) Heavy branding on good will help to increase or keep demand stable: Demographics The UK is experiencing a baby boom what kinds of products would experience a surge in demand as a result? Nappies, dummys, prams etc Baby Boom = increase in demand for baby products
Baby food Nappies Prams Baby bath products Baby clothes Cot blankets external shocks All of these shocks can cause a change in demand for certain goods Outbreak of war (tanks, guns) Changes in unemployment (inferior goods) House prices change (financial products such as mortgages or loans to improve existing property) Interest rates (cost of borrowing) Inflation rates (cost of living) Tax rates (consumer spending) Exchange rates (imports and exports) Seasonality what products experience an increase in demand in these seasons?
Winter Spring Autumn Summer Winter: Snow clothes, skis, heating (gas / electric) hand warmers, sledges, thick socks, Christmas goods etc Spring: Spring lamb for dinner, daffodil bunches in supermarkets, seeds, lighter clothing, Easter goods Summer: Garden furniture, outdoor leisure wear, flip flops, sun cream, beach towels, swimwear Autumn: Wellingtons, umbrellas, warmer clothing, coats, Halloween goods, fireworks Revision Video Glossary Substitute products; products that can be used in place of each other, for example if no tea is available a substitute hot beverage is coffee or hot chocolate Complimentary products; products that need to be used together, for example a printer will need ink Demographics; the statistical data relating to population - used to describe a group in marketing e.g. UKs aging population demographics 1.2.2 Supply AS Edexcel New Specification 2015 Business From the specification
a) Factors leading to a change in supply: changes in the costs of production introduction of new technology indirect taxes government subsidies external shocks Guidance from Edexcel Lesson Objectives To be able to discuss the main factors that lead to a change in quantity supplied To be able to answer sample exam questions based on the topic area Starter Which of these is correct and which is wrong?
Put the right pair below the tick Which of these is correct and which is wrong? Price of oil increases Supply goes down Minimum wage is more Quantity supplied decreases Price of oil increases quantity supplied decreases AIM: to stop student using goes up and down and to use increase and decrease The price of oil is raised Price of oil goes up Definition of Supply is measured in terms of the quantity of a good or service that a producer is willing and able to make available on the market, at a given price, over a given period of time. Changes in the costs of production
If the costs of production increase (for example) Due to rise in raw materials Rise in minimum wage Rise in overheads Rise in rent or mortgage rates on premises Then the amount supplied will decrease as less profit will be made Businesses will switch to production of more profitable products (profit signalling mechanism at play here) Article: The future of chocolate why cocoa production is at risk Introduction of new technology
New technology means that more goods can be supplied Mechanisation and automation of production processes means supply can increase Mass production methods improved to increase capacity Watch a video on how luxury chocolates are made How much of the video process is by hand and how much is automated by technology? Indirect taxes When the government increases tax on goods such as petrol then supply will decrease VAT / Customs tax / Excise tax are all indirect taxes and when applied to goods it makes supplying them less attractive.This can lead to a decrease in supply. Direct are income tax and corporation tax Government subsidies This is a payment from the government to encourage more suppliers to enter the market and to supply more.With a subsidy there is an increase in supply. For example the Government pays subsidies to wind farm manufacturers to erect turbines offshore in the UK.This adds about 18 a year to a UK householders energy bill. Without these subsidies not enough turbines would be built. External shocks Changes in oil price Change in tax rate
Changes in labour laws (e.g. length of working week) For example if the cost of oil increases this increases cost of production, and may lead to job losses or cost cutting, and will result in a decrease in supply Scroll down to video of lady talking very useful and put in simple terms Plenary game: Increase or decrease in supply?
Increase in oil price Increase in minimum wage Increase in orders Increase in productivity Increase in VAT rate Decrease in inflation Introduction of robots Introduction of new labour laws 1 decrease 2 decrease 3 increase 4 increase 5 decrease 6 increase 7 increase 8 decrease Revision Video Glossary Productivity; the rate at which goods or services are produced Shock; an event which causesa change within an economy which occurs outside of it.Unpredictable and may affect supply. Automation; method of operating or controlling processes by automatic means using devices.Reduces need for human interaction. Mechanisation; method of operating or controlling processes using machinery Indirect tax; taxes levied on products or services before they reach the consumer e.g. VAT and excise Government subsidy; a grant or gift of money from the government to encourage supply of certain goods e.g. milk subsidies 1.2.3 Markets AS Edexcel New Specification 2015 Business From the specification
The interaction of supply and demand b) The drawing and interpretation of supply and demand diagrams to show the causes and consequences of price changes Guidance from Edexcel Guidance from Edexcel Guidance from Edexcel Guidance from Edexcel Lesson Objectives To be able to discuss the interaction of supply and demand To be able to draw supply and demand diagrams relating to price changes To be able to interpret supply and demand diagrams relating to price changes To be able to answer sample exam questions based on the topic area Starter If the price of these trainers drops from 60 to 20 will demand for them; Increase Decrease Can you conclude that there is a relationship between price and demand?If they are 20 will supply increase or decrease? Therefore you can conclude that price and demand are linked and price and supply are linked.Students now need to just apply common sense to questions about supply and demand. Definition of supply This is the amount of product or service that a business is willing and able to provide at a given price We draw a supply curve: Definition of demand This is the amount of product or service that customers are willing and able to buy at a given price We draw a demand curve As price rises so demand will fall How does supply and demand interact?
Market forces can cause changes in the price of an item. For example if there is poor weather and there are few strawberries, the price will go UP per punnet as they are rarer and demand has not changed If there is a good summer and lots of new farms produce strawberries there will be a glut of supply, they will be in every shop and so price will go DOWN Effect of price changes on demand curve Changes in demand Changes in Demand due to PRICE
Change in price will cause a MOVEMENT along the demand curve If the price of a car goes up then then demand will move from point a to point b on the demand curve as less goods are demanded at that price Costs more? Less customers b a Changes in demand due to NON-price
tastes and preferences of consumers (trends) the number of consumers the incomes of consumers (rising real income) (wages) the prices of complimentary goods consumers expectations concerning future availability or prices of the goods. Cost of loans Economic growth New products entering the market Advertising Population changes If any of these factors change then demand will change and will cause a SHIFT in the demand curve up or down Changes in demand curve due to NON-PRICE
If consumer incomes rise then the demand curve (for a normal good) will SHIFT up and right Changes in demand curve due to non-price determinants
If tastes for a good fall and demand falls then the demand curve will drop to the left Drawing demand Shifts with demand and supply lines
Q Effect of price changes on the supply curve Changes in Supply Changes in supply due to PRICE
Changes in PRICE may cause movement along the supply curve b As the price rises the business wants to supply more goods at this price, so quantity goes up with price a Changes in supply due to NON-Price
Weather e.g. Loss of crops Technical progress Change in price of productive factors (not of cost of good to consumer) Changes in price of raw materials Changes in tax Changes in subsidies Changes in supply due to NON-PRICE
If weather is good and crops flourish then supply curve will shift to the right Changes in supply due to NON-PRICE
If the cost of raw materials goes up the supply curve will shift to the left Drawing supply Shifts with demand and supply lines
Q Summary If the business changes the price of the product -this causes movement along the supply curve Non-price (like weather or incomes) causes a shift of the whole supply curve left or right Other factors may CAUSE price to change which means a shift in the curve Walkthrough question Question
Draw a diagram to illustrate the impact of rising costs such as staff wages on an estate agency business. Walkthrough solved S2 S1 P2 P1 D Q1 Q2 Answer question 1 Answer Q1 - Diagram P S P2 P1 D2 D1 Q1 Q2 Q Sample question 2 8 Marks Case study on next slide 5 marks for diagram Answer question 2 Answer Q2 - Diagram S2 P S1 P2 P1 D2 D1 Q2 Q1 Q Sample question 3 8 Marks Case study on next slide 5 marks for diagram Answer question 3 Answer Q3 - Diagram P Q S P1 P2 D1 D2 Q2 Q1
All these questions are taken from past papers of unit 2B of the econ / bus Edexcel A Level and therefore can only be an approximation of what may be asked. There were no sample questions supplied on the supply and demand curve at time of writing. D1 D2 Q2 Q1 Q Revision Video Glossary Supply; amount businesses willing to supply
Demand; amount customers willing to buy Supply curve; a line to plot the relationship between price and quantity supplied Demand Curve; a line to plot relationship between price and quantity demanded Normal good;products where an increase in consumers income means an increase in demand Inferior good; products where an increase in consumers income means a decrease in demand Substitute good; an alternative product used to satisfy a want Complementary good; products that may be used together e.g. coffee machine and coffee pods, smart phone and paid for apps