121 demand as edexcel new specification 2015 business
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121 Demand AS Edexcel New Specification 2015 Business From the
specification
a) Factors leading to a change in demand: changes in the prices of
substitutes and complementary goods changes in consumer incomes
fashions, tastes and preferences advertising and branding
demographics external shocks seasonality Guidance from Edexcel
Lesson Objectives To be able to identify and discuss in detail
factors that may lead to a change in demand, both price and
non-price To be able to answer sample exam questions based on the
topic area Starter If this drink was 5 would you buy it?
If this drink was 10p a can would you buy more of it? This should
demonstrate that price factors will influence demand. Definition:
Demand Demand is the amount of a good that consumers are willing
and able to buy at a given price. The amount of a good demanded
depends on: the price of the good the income of consumers the
demand for alternative goods which could be used (substitutes) the
demand for goods used at the same time (complements) whether
consumers like the good (consumer taste) 7 Factors that can lead to
a change in demand (or why are we not selling anything
anymore?)
changes in the prices of substitutes and complementary goods
changes in consumer incomes fashions, tastes and preferences
advertising and branding demographics external shocks seasonality
Lottery winners will the type of products that they demand change
now they have won? Recap complementary goods
Demand for one type of good will affect demand for another,
purchase is somehow linked, petrol and cars, blu-ray player and
blue-ray films Recap substitute goods
The impact of a change in price will cause consumers to switch
products to an alternative good.If air fair is too expansive a
consumer could switch to a train or simply drive to their
destination. Changes in the prices of substitutes and complementary
goods
As prices for substitutes and complimentary goods rise this will
change the quantity demanded. 49.99 for a hot drinks machine is OK
as long as the capsules are cheap enough.3.65 for 16, how much is
each coffee? What if they were 1 for 16, would this affect demand
for the machines? Changes in consumer incomes
As consumers incomes rise, then the pattern of demand changes. Can
you think ofa range of different products that may be bought by
each family? How do these lists differ?Think inferior / luxury
goods Fashions, tastes and preferences
Fashion Trend- high fashion meets sports Advertising and
branding
As products are heavily advertised they may experience an increase
in demand. If this did not occur then businesses would not invest
in advertising at all. Products in adverts are associated with
other things we already have a positive feeling about (see video)
Heavy branding on good will help to increase or keep demand stable:
Demographics The UK is experiencing a baby boom what kinds of
products would experience a surge in demand as a result? Nappies,
dummys, prams etc Baby Boom = increase in demand for baby
products
Baby food Nappies Prams Baby bath products Baby clothes Cot
blankets external shocks All of these shocks can cause a change in
demand for certain goods Outbreak of war (tanks, guns) Changes in
unemployment (inferior goods) House prices change (financial
products such as mortgages or loans to improve existing property)
Interest rates (cost of borrowing) Inflation rates (cost of living)
Tax rates (consumer spending) Exchange rates (imports and exports)
Seasonality what products experience an increase in demand in these
seasons?
Winter Spring Autumn Summer Winter: Snow clothes, skis, heating
(gas / electric) hand warmers, sledges, thick socks, Christmas
goods etc Spring: Spring lamb for dinner, daffodil bunches in
supermarkets, seeds, lighter clothing, Easter goods Summer: Garden
furniture, outdoor leisure wear, flip flops, sun cream, beach
towels, swimwear Autumn: Wellingtons, umbrellas, warmer clothing,
coats, Halloween goods, fireworks Revision Video Glossary
Substitute products; products that can be used in place of each
other, for example if no tea is available a substitute hot beverage
is coffee or hot chocolate Complimentary products; products that
need to be used together, for example a printer will need ink
Demographics; the statistical data relating to population - used to
describe a group in marketing e.g. UKs aging population
demographics 1.2.2 Supply AS Edexcel New Specification 2015
Business From the specification
a) Factors leading to a change in supply: changes in the costs of
production introduction of new technology indirect taxes government
subsidies external shocks Guidance from Edexcel Lesson Objectives
To be able to discuss the main factors that lead to a change in
quantity supplied To be able to answer sample exam questions based
on the topic area Starter Which of these is correct and which is
wrong?
Put the right pair below the tick Which of these is correct and
which is wrong? Price of oil increases Supply goes down Minimum
wage is more Quantity supplied decreases Price of oil increases
quantity supplied decreases AIM: to stop student using goes up and
down and to use increase and decrease The price of oil is raised
Price of oil goes up Definition of Supply is measured in terms of
the quantity of a good or service that a producer is willing and
able to make available on the market, at a given price, over a
given period of time. Changes in the costs of production
If the costs of production increase (for example) Due to rise in
raw materials Rise in minimum wage Rise in overheads Rise in rent
or mortgage rates on premises Then the amount supplied will
decrease as less profit will be made Businesses will switch to
production of more profitable products (profit signalling mechanism
at play here) Article: The future of chocolate why cocoa production
is at risk Introduction of new technology
New technology means that more goods can be supplied Mechanisation
and automation of production processes means supply can increase
Mass production methods improved to increase capacity Watch a video
on how luxury chocolates are made How much of the video process is
by hand and how much is automated by technology? Indirect taxes
When the government increases tax on goods such as petrol then
supply will decrease VAT / Customs tax / Excise tax are all
indirect taxes and when applied to goods it makes supplying them
less attractive.This can lead to a decrease in supply. Direct are
income tax and corporation tax Government subsidies This is a
payment from the government to encourage more suppliers to enter
the market and to supply more.With a subsidy there is an increase
in supply. For example the Government pays subsidies to wind farm
manufacturers to erect turbines offshore in the UK.This adds about
18 a year to a UK householders energy bill. Without these subsidies
not enough turbines would be built. External shocks Changes in oil
price Change in tax rate
Changes in labour laws (e.g. length of working week) For example if
the cost of oil increases this increases cost of production, and
may lead to job losses or cost cutting, and will result in a
decrease in supply Scroll down to video of lady talking very useful
and put in simple terms Plenary game: Increase or decrease in
supply?
Increase in oil price Increase in minimum wage Increase in orders
Increase in productivity Increase in VAT rate Decrease in inflation
Introduction of robots Introduction of new labour laws 1 decrease 2
decrease 3 increase 4 increase 5 decrease 6 increase 7 increase 8
decrease Revision Video Glossary Productivity; the rate at which
goods or services are produced Shock; an event which causesa change
within an economy which occurs outside of it.Unpredictable and may
affect supply. Automation; method of operating or controlling
processes by automatic means using devices.Reduces need for human
interaction. Mechanisation; method of operating or controlling
processes using machinery Indirect tax; taxes levied on products or
services before they reach the consumer e.g. VAT and excise
Government subsidy; a grant or gift of money from the government to
encourage supply of certain goods e.g. milk subsidies 1.2.3 Markets
AS Edexcel New Specification 2015 Business From the
specification
The interaction of supply and demand b) The drawing and
interpretation of supply and demand diagrams to show the causes and
consequences of price changes Guidance from Edexcel Guidance from
Edexcel Guidance from Edexcel Guidance from Edexcel Lesson
Objectives To be able to discuss the interaction of supply and
demand To be able to draw supply and demand diagrams relating to
price changes To be able to interpret supply and demand diagrams
relating to price changes To be able to answer sample exam
questions based on the topic area Starter If the price of these
trainers drops from 60 to 20 will demand for them; Increase
Decrease Can you conclude that there is a relationship between
price and demand?If they are 20 will supply increase or decrease?
Therefore you can conclude that price and demand are linked and
price and supply are linked.Students now need to just apply common
sense to questions about supply and demand. Definition of supply
This is the amount of product or service that a business is willing
and able to provide at a given price We draw a supply curve:
Definition of demand This is the amount of product or service that
customers are willing and able to buy at a given price We draw a
demand curve As price rises so demand will fall How does supply and
demand interact?
Market forces can cause changes in the price of an item. For
example if there is poor weather and there are few strawberries,
the price will go UP per punnet as they are rarer and demand has
not changed If there is a good summer and lots of new farms produce
strawberries there will be a glut of supply, they will be in every
shop and so price will go DOWN Effect of price changes on demand
curve Changes in demand Changes in Demand due to PRICE
Change in price will cause a MOVEMENT along the demand curve If the
price of a car goes up then then demand will move from point a to
point b on the demand curve as less goods are demanded at that
price Costs more? Less customers b a Changes in demand due to
NON-price
tastes and preferences of consumers (trends) the number of
consumers the incomes of consumers (rising real income) (wages) the
prices of complimentary goods consumers expectations concerning
future availability or prices of the goods. Cost of loans Economic
growth New products entering the market Advertising Population
changes If any of these factors change then demand will change and
will cause a SHIFT in the demand curve up or down Changes in demand
curve due to NON-PRICE
If consumer incomes rise then the demand curve (for a normal good)
will SHIFT up and right Changes in demand curve due to non-price
determinants
If tastes for a good fall and demand falls then the demand curve
will drop to the left Drawing demand Shifts with demand and supply
lines
Q Effect of price changes on the supply curve Changes in Supply
Changes in supply due to PRICE
Changes in PRICE may cause movement along the supply curve b As the
price rises the business wants to supply more goods at this price,
so quantity goes up with price a Changes in supply due to
NON-Price
Weather e.g. Loss of crops Technical progress Change in price of
productive factors (not of cost of good to consumer) Changes in
price of raw materials Changes in tax Changes in subsidies Changes
in supply due to NON-PRICE
If weather is good and crops flourish then supply curve will shift
to the right Changes in supply due to NON-PRICE
If the cost of raw materials goes up the supply curve will shift to
the left Drawing supply Shifts with demand and supply lines
Q Summary If the business changes the price of the product -this
causes movement along the supply curve Non-price (like weather or
incomes) causes a shift of the whole supply curve left or right
Other factors may CAUSE price to change which means a shift in the
curve Walkthrough question Question
Draw a diagram to illustrate the impact of rising costs such as
staff wages on an estate agency business. Walkthrough solved S2 S1
P2 P1 D Q1 Q2 Answer question 1 Answer Q1 - Diagram P S P2 P1 D2 D1
Q1 Q2 Q Sample question 2 8 Marks Case study on next slide 5 marks
for diagram Answer question 2 Answer Q2 - Diagram S2 P S1 P2 P1 D2
D1 Q2 Q1 Q Sample question 3 8 Marks Case study on next slide 5
marks for diagram Answer question 3 Answer Q3 - Diagram P Q S P1 P2
D1 D2 Q2 Q1
All these questions are taken from past papers of unit 2B of the
econ / bus Edexcel A Level and therefore can only be an
approximation of what may be asked. There were no sample questions
supplied on the supply and demand curve at time of writing. D1 D2
Q2 Q1 Q Revision Video Glossary Supply; amount businesses willing
to supply
Demand; amount customers willing to buy Supply curve; a line to
plot the relationship between price and quantity supplied Demand
Curve; a line to plot relationship between price and quantity
demanded Normal good;products where an increase in consumers income
means an increase in demand Inferior good; products where an
increase in consumers income means a decrease in demand Substitute
good; an alternative product used to satisfy a want Complementary
good; products that may be used together e.g. coffee machine and
coffee pods, smart phone and paid for apps