1.2.1 Demand

Question 1

Define ‘demand’

Answer 1

• Refers to the number of goods/services customers are willing to buy at a given price

Question 2

What determines the level of demand?

Answer 2

• Price

Question 3

What is the relationship between quantity demanded by customers and price?

Answer 3

There is an inverse relationship between quantity demanded by customers & price

As price increases quantity demanded decreases
As price decreasese quantity demanded increases

Question 4

What factors are there that lead to a change in demand?

Answer 4

• Changes in the prices of substitues & complemantary goods
• Changes in consumer incomes
• Fashion’s tastes & preferences
• Advertising & branding
• Demographics
• External shocks
• Seasonality

Question 5

In terms of a supply & demand graph, when there is a change in price what happens?

Answer 5

• Price leads to movement along the demand curve

Question 6

In terms of a supply & demand graph, when there is a change in other factors affecting demand what happens?

Answer 6

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

Question 7

What are the factors leading to a change in demand non- price?

Answer 7

• Time of year/seasonality
• Alternative brands
• Changes in consumer incomes
• External shocks

(TACE)

Question 8

How can alternative brands lead to a change in demand?

Answer 8

• If an alternative brand is avaliable with a similiar/same product it will affect demand

Question 9

How can changes in the price & subsitutes of complemantary goods affect demand?

Answer 9

• A complemantary product is one that needs to be used with another product e.g. coffe machine/coffe capsules
• If these goods become too expensive then customers may not buy the original product at all.

Question 10

How can changes to consumer income affect demand?

Answer 10

• As consumer incomes rise then demand for some products will fall & some will increase

e.g. microwave meals may fall, but waitrose organic food may increase

also as income increases demand for necessities (needs will stay same)

Question 11

How can changes in fashion tastes affect demand?

Answer 11

• As trends in goods & services rise then demand for these products rise

Question 12

How can marketing and advertising affect demand?

Answer 12

• Marketing & advertising can attract more consumers and increase sales & demand for certain products/services

Question 13

How can seasonality affect demand?

Answer 13

• Some products reach peak demand a certain times of the year
  e.g christmas,halloween,easter etc

Question 14

How can external shocks effect demand?

Answer 14

• A positive shock will cause a shortage and drive the price higher
• While a negative shock will lead to oversupply and a lower price.
• Demand shocks are usually short-lived, but can have longer-term consequences.