1.2 The Market Flashcards
Define demand
The amount of a good that consumers are willing or able to pay at a particular price.
Price increases, demand decreases.
When would price increasing not affect demand?
If competing businesses in the industry are also higher their prices, they may still be seen as relatively cheap in comparison. Customers are still willing to pay for the goods.
- Some businesses may not be concerned with demand falling as they know their target audience are affluent and can afford it.
- Is it worth it? VALUE FOR MONEY, for example if price went up to compensate for the fact that workers are being paid more.
- Perspective.
What is an example of application in an answer, using example of Primark
“…which is different from the usual affordable prices of Primark”; may have to shut down some of their many stores in popular cities; lower customer loyalty if prices increase, bad rep.
Examples of consequences retail business may have if they increase their prices
- Too much stock
- Lower profits/ customer sales
- Bad reputation if higher prices for no reason (customer loyalty), may also affect how quality of goods are viewed.
Name all the non-price factors affecting demand.
- Price of substitutes (related to competing businesses)
- Changes in customer income
- Fashion, taste, and preferences
- Price of complimentary goods
- Marketing and advertisement
- Population and demographics
- Seasonal factors (climate, weather, holidays)
- External shocks
What are the 3 types of goods?
- Normal goods (such as buying branded items instead of off brands, if consumer income increases for example)
- Luxury goods (increased income leads to a bigger percentage increase in demand, sports cars)
- Inferior goods (increased income leads to their fall in demand,like cheap substitutes: supermarket own brands)
Explain how changes in consumer income is a factor that affects demand
Some products will increase/ decrease in demand due to disposable income available.
- e.g. demand for food in supermarkets increases as less people can afford to ear out; demand shifts in restaurants
- Holidays and clothing sill have dropped in demand, less disposable income for liabilities such as cars and pets
Explain how fashion, taste and preferences are a factor affecting demand
It fluctuates often and is so dynamic, businesses can be affected severely as they must know upcoming trends which are created by consumers.
- if businesses can capitalise on trends and remain flexible, increasing revenue, eventually will go on sale when not popular (must discount or likely to not be sold and have a stock overflow, sale entices and encourages customers).
- To keep on top of things businesses can talk to customers and do research.
Explain how price of substitutes is a factor affecting demand
- an external factor which cant be controlled, consider competing industries
A substitute may be chosen if cheaper, more convenient or better quality. - can reduce impact from changing demand by staying aware & researching competitors.
- MAY NOT BE THE CASE: it may be indifferent to loyal customers, price sensitive customers are a different case.
- example includes KFC deals VS McDonald’s monopoly
- substitute products: same and product/ experience through an alternative method (cars vs bus)
- competitive product is different: Ferrari vs Honda (same market/ industry)
Explain how the price of complimentary goods is a factor affecting demand
- this may not work both ways for main and complimentary products: bread and toaster.
Price of main product increases (coffee machine), so less are bought; impacts sales of complimentary (coffee pods)
- for this e.g. increase complimentary = demand for main decreases
Wouldnt apply for costs coffee though e.g.
Explain how marketing and advertisement is a factor affecting demand
Increases awareness of brand, higher demand. Opposite if they cut down this factor for a budget cut e.g.
- may be risky as marketing has to be good to be effective, also consider if a lot of money is spent on it when it could be spent on something else.
Marketing problem? Expensive, small businesses struggle; choose cheaper alternatives like leaflets and social media (could either be bad quality or not as effective, reaching less people unlike ads during football games on TV).
What must you always consider with different factors affecting topics?
The perspective, some factors could be good and bad. THE SITUATION DEPENDS, show you have considered both.
Explain how population and demographics is a factor affecting demand
E.g. A baby boom, increases demand for baby products. Also ageing population.
- A higher demand for one product may mean a lower demand for another product as knock on effect. Not necessarily the case.
Explain how seasonal factors (weather, climate, even holiday times) is a factor affecting demand
Demand may increase for certain items like sun cream, and decrease for others, such as scarves.
- Christmas trees also
Explain how external shocks are a factor affecting demand
Demand will be affected depending on what type of business: COVID, take always thrived; tourism suffered.
Cannot foresee external shocks (can try plan for them), yet easier to respond if similar had happened before - such as a lockdown
EXTERNAL SHOCKS: terrorism, war, disease, health care crisis.
- Examples: In war, health care would increase and medical equipment. Ports suffer, goods cant be imported, restaurants/ leisure/ schools and transport decrease. App usage like zoom increases.
