Topic 1.2 The Market
Demand Price Elasticity of Demand
A measure of the quantity of a product that consumers want and buy The relationship between a change in the price of a Th
at a given price, at a particular time. product and the change in demand for the product. th
PRICE ELASTICITY OF DEMAND = % CHANGE IN
Factors Affecting Demand QUANTITY DEMANDED/ % CHANGE IN PRICE
Substitutes – the demand for a particular brand or product type can be affected by
a price change of a substitute (a product that replaces another).
Complementary products – products which are used together, e.g. printers and ink
PRICE ELASTIC PRICE INELASTIC
cartridges. if the price of the printers were to increase, the demand for printers might
fall, and so the demand for ink cartridges could fall too. PRICE INCREASE Leads to a big % Leads to a small %
Consumer income - a higher income can lead to an increase in demand for more decrease in quantity decrease in quantity
expensive products, whereas a fall in income can increase the demand for cheaper demanded. Revenue demanded. Revenue
goods and services. falls still rises
Fashion, consumer tastes and consumer preferences – demand for a product
relies on what consumers want. E.g. warnings about the dangers of eating too much PRICE Leads to a big % Leads to a small %
sugar could lead to a change in consumer diets - this could lead to a fall in demand DECREASE increase in quantity increase in quantity
for sugary drinks and an increase in demand for healthier drinks. demanded. Revenue demanded, but
Advertising and branding - increase demand for a product or encourage existing rises revenue fall due to
consumers to be loyal to the product or brand and repeatedly buy the product to stop
demand falling. lower prices
Demographics – changes in population can lead to changes in demand. E.g.
advances in healthcare mean that people are living longer. This has led to an increase Factors Affecting PED
in demand for goods and services for the older generation. Number of substitutes/competitors.
Seasonal changes – demand for goods and services can changes throughout the Relative effort/costs of switching to another product.
year. E.g. summer leads to an increase in demand for fans.
Extent to which the product is considered a necessity.
External shocks - this include the threat of war, diseases, and extreme weather. E.g.
a risk of flooding may lead to an increase in demand for sandbags.
Perceived value of the brand.
Time – the PED for a product will tend to fall over time as consumers
find substitutes.
Supply
Percentage of income spent on the product.
The quantity of a product that suppliers are willing and able to supply
to a market at a given price, at a particular time.
Factors Affecting Supply
Cost of production - if the cost of production increases then the profit made from
selling the product at a given price decreases, so there will be a fall in supply.
Indirect taxes - The government can influence supply by changing taxation where if
the tax on a good or service increases, then this effectively increases the costs for
Demand Price Elasticity of Demand
A measure of the quantity of a product that consumers want and buy The relationship between a change in the price of a Th
at a given price, at a particular time. product and the change in demand for the product. th
PRICE ELASTICITY OF DEMAND = % CHANGE IN
Factors Affecting Demand QUANTITY DEMANDED/ % CHANGE IN PRICE
Substitutes – the demand for a particular brand or product type can be affected by
a price change of a substitute (a product that replaces another).
Complementary products – products which are used together, e.g. printers and ink
PRICE ELASTIC PRICE INELASTIC
cartridges. if the price of the printers were to increase, the demand for printers might
fall, and so the demand for ink cartridges could fall too. PRICE INCREASE Leads to a big % Leads to a small %
Consumer income - a higher income can lead to an increase in demand for more decrease in quantity decrease in quantity
expensive products, whereas a fall in income can increase the demand for cheaper demanded. Revenue demanded. Revenue
goods and services. falls still rises
Fashion, consumer tastes and consumer preferences – demand for a product
relies on what consumers want. E.g. warnings about the dangers of eating too much PRICE Leads to a big % Leads to a small %
sugar could lead to a change in consumer diets - this could lead to a fall in demand DECREASE increase in quantity increase in quantity
for sugary drinks and an increase in demand for healthier drinks. demanded. Revenue demanded, but
Advertising and branding - increase demand for a product or encourage existing rises revenue fall due to
consumers to be loyal to the product or brand and repeatedly buy the product to stop
demand falling. lower prices
Demographics – changes in population can lead to changes in demand. E.g.
advances in healthcare mean that people are living longer. This has led to an increase Factors Affecting PED
in demand for goods and services for the older generation. Number of substitutes/competitors.
Seasonal changes – demand for goods and services can changes throughout the Relative effort/costs of switching to another product.
year. E.g. summer leads to an increase in demand for fans.
Extent to which the product is considered a necessity.
External shocks - this include the threat of war, diseases, and extreme weather. E.g.
a risk of flooding may lead to an increase in demand for sandbags.
Perceived value of the brand.
Time – the PED for a product will tend to fall over time as consumers
find substitutes.
Supply
Percentage of income spent on the product.
The quantity of a product that suppliers are willing and able to supply
to a market at a given price, at a particular time.
Factors Affecting Supply
Cost of production - if the cost of production increases then the profit made from
selling the product at a given price decreases, so there will be a fall in supply.
Indirect taxes - The government can influence supply by changing taxation where if
the tax on a good or service increases, then this effectively increases the costs for
