Varnika RAMJEE
1.2 The market
1.2.1 Demand
- demand is the willingness and ability for an individual to buy the product at a given price and at a
given time period
- Effective demand is where people are actually able to buy the product as they have the money for
it
Factors effecting demand – PASICFIC
- Price (movement along the curve as a contraction or an extension)
- Population
- Advertising
- Substitutes
- Income (normal goods and inferior goods)
- Fashion and tastes
- Interest rates
- Complements
- Seasonal
- External shock
Diagrams:
Price: Shifting factor:
Demand risks:
- Undiversified demand: occurs when a business is dependent on one product so they need to
diversify and spread risk by finding new sources of demand and therefore being less reliant
upon any single source
- Overtrading: running so fast that the cash position is on a knifes edge, the overdraft limit as
meeting next months demand is expensive and could cost extra
, Varnika RAMJEE
1.2.2 Supply
- Supply is the quantity of the product that producers are able and willing to deliver at a given price
at a given time period
Law of supply states that if price increases then supply increases, vice versa
Factors effecting supply (PINTSWC):
- Price (movement along the curve as an extension or a contraction)
- Productivity
- Indirect tax (for anyone buying the g/s)
- Number of firms/suppliers
- Technology
- Subsidies (payment of money by govt to a producer in order to encourage them to supply a
certain g/s, it reduces cost of production)
- Weather
- Cost of production
- Physical constraints
Supply diagram:
Price: Shifting factor:
- A decrease in demand or an increase in supply will REDUCE PRICES
- An increase in demand and increase in supply will RAISE PRICES
1.2 The market
1.2.1 Demand
- demand is the willingness and ability for an individual to buy the product at a given price and at a
given time period
- Effective demand is where people are actually able to buy the product as they have the money for
it
Factors effecting demand – PASICFIC
- Price (movement along the curve as a contraction or an extension)
- Population
- Advertising
- Substitutes
- Income (normal goods and inferior goods)
- Fashion and tastes
- Interest rates
- Complements
- Seasonal
- External shock
Diagrams:
Price: Shifting factor:
Demand risks:
- Undiversified demand: occurs when a business is dependent on one product so they need to
diversify and spread risk by finding new sources of demand and therefore being less reliant
upon any single source
- Overtrading: running so fast that the cash position is on a knifes edge, the overdraft limit as
meeting next months demand is expensive and could cost extra
, Varnika RAMJEE
1.2.2 Supply
- Supply is the quantity of the product that producers are able and willing to deliver at a given price
at a given time period
Law of supply states that if price increases then supply increases, vice versa
Factors effecting supply (PINTSWC):
- Price (movement along the curve as an extension or a contraction)
- Productivity
- Indirect tax (for anyone buying the g/s)
- Number of firms/suppliers
- Technology
- Subsidies (payment of money by govt to a producer in order to encourage them to supply a
certain g/s, it reduces cost of production)
- Weather
- Cost of production
- Physical constraints
Supply diagram:
Price: Shifting factor:
- A decrease in demand or an increase in supply will REDUCE PRICES
- An increase in demand and increase in supply will RAISE PRICES
