Demand (Edexcel A Level Business)

• Demand refers to the number of goods/services customers are willing to buy at a given price
  • Effective demand occurs when customers are willing and able (they have the money) to buy at a given price
    
    
• There is an inverse relationship between the quantity demanded by customers and the price 
  • As the price increases, the quantity demanded decreases
  • As price decreases, the quantity demanded increases
  • Hence the demand curve slopes downwards from left to right
    
    
• This can be illustrated in the diagram below

A demand curve showing how a change in price will lead to a change in quantity demanded (QD)

Diagram Analysis

• An increase in price from £10 to £15 leads to a movement up the demand curve from point A to B
  • Due to the increase in price, the quantity demanded (QD) has fallen from 10 to 7 units
     
• A decrease in price from £10 to £5 leads to a movement down the demand curve from point A to point C
  • Due to the decrease in price, the QD has increased from 10 to 15 units

• A change in price leads to a movement along the demand curve
  
  
• However, a change in any other factors affecting demand will shift the entire demand curve to the left or right
  • These are called non-price factors affecting demand
      

The non-price factors affecting demand result in a shift of the entire demand curve
 

• For example, if a firm increases its Instagram advertising, there will be an increase in demand as more consumers become aware of the product
  • This is a shift in demand from D to D₁. The price remains unchanged at £7 but the demand has increased from 15 to 25 units
      
    

    

A change in any non-price factor will lead to a change in the position of the demand curve

Diagram Analysis

• The initial demand curve is seen at D
  • At a price of £7, 15 units are demanded
     
• If the price remains constant at £7 but demand decreases due to one of the non-price factors of demand (e.g. decreasing incomes), the entire demand curve shifts to the left from D to D₂
  • Demand has decreased from 15 units to 5 units
    
    
• If the price remains constant at £10 but demand increases due to one of the non-price factors of demand (e.g. increased advertising expenditure), the entire demand curve shifts to the right from D to D₃
  • Demand has increased from 15 units to 25 units

Non-price Factors Affecting Demand

Non-price Factor	Explanation	Example	Affect on Demand
Change in the price of substitutes	Substitutes goods are replacement goods e.g. different brands of car	If the price of VW cars increases then the demand for Ford cars might rise	Shifts the demand curve for Ford cars to the right
Change in the price complement	Complementary goods are goods that are consumed together	Cars and petrol: if the price of petrol rises the demand for cars may fall	Shifts the demand curve for cars to the left
Change in consumer incomes	As a consumer’s income rises demand for normal goods) increases	Branded goods e.g. Superdry hoodies - as consumer incomes rise demand for branded goods will increase	Shifts the demand curve for branded goods  to the right
	As a consumer’s income falls demand for inferior goods)  increases	Own label products e.g. supermarket hoodies - as consumer incomes fall, demand for own label goods will increase	Shifts the demand curve for own label goods to the right
Fashions, tastes & preferences	If goods/services become more fashionable then demand them increases	Plant based foods have become more popular in recent years	Shifts the demand curve for plant based foods to the right
Advertising & branding	If more money is spent on advertising or branding, then this increases consumer awareness and brand loyalty	Coca Cola spends an average of $4bn per year on advertising and branding	Shifts the demand curve to the right and makes it more price inelastic
Demographics	If the structure or size of a country’s population changes, then the demand for goods/services will also change	A decrease in the number of babies being born will reduce the demand for baby products	Shifts the demand curve for baby products to the left
Seasonality	Demand varies at different times of the year	In cold climates, the demand for gas and electricity will fall in the summer months	Shifts the demand curve for energy to the left
External shocks	An unexpected event can change the demand	The outbreak of Covid-19 lead to panic buying of goods such as toilet rolls	Shifts the demand curve for toilet rolls to the right