Clever Grades

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Factors Affecting Market Demand

Core Concept Overview

Why Demand Changes

Demand is not constant; it varies depending on several key factors. These factors influence how much of a good or service consumers want to buy at different prices. We will focus on the seven main variables that drive shifts in market demand.

The Law of Demand

Price ↑ ↔ Demand ↓
This is the most fundamental factor. Generally, when prices rise, demand falls, and when prices fall, demand increases.

Income Effects (Normal vs Inferior Goods)

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Normal Goods As consumers’ income increases, they usually have more purchasing power, leading to greater demand for many products.
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Inferior Goods Some goods (e.g., cheaper brands of food) may see increased demand when income falls.

Related Goods Definitions

How changes in the price of one good affect the demand for another.

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Substitutes

If the price of one product rises, demand for its substitute often increases (e.g., Margarine if Butter price rises).
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Complements

Products used together. An increase in the price of one can decrease demand for both (e.g., Printer Ink if Printer price rises).

Tastes and Trends

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Preference Shift: Consumer preferences, culture, and trends influence demand. Growing health consciousness can increase demand for organic foods.

Strategic Consumer Expectations

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I expect prices to rise next month. Should I wait?
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No! You may purchase more now, increasing current demand before the price hike.

Demographic & Marketing Drivers

Two additional variables that directly boost the potential market size and desirability.

C

Number of Consumers

The bigger the population or target market, the higher the potential demand for a product.
P

Promotion

Advertising, sales offers, and other promotional activities can increase consumer awareness and desirability of products, boosting demand.
Factors Affecting Demand Deck
Term
Price Effect

What happens to demand when the price of a product rises?

Answer
Law of Demand

Demand generally falls (Law of Demand).

Term
Consumer Income

How does consumer income affect demand for normal goods?

Answer
Income Effect

When income rises, demand for normal goods increases.

Term
Inferior Goods

What type of goods see increased demand when income falls?

Answer
Definition

Inferior goods.

Term
Substitute Products

What are substitute products?

Answer
Definition

Products that can replace each other; an increase in the price of one raises demand for the other.

Term
Complements

How do complements affect demand?

Answer
Effect

An increase in the price of one complement decreases demand for both products.

Term
Tastes and Fashion

How do tastes and fashion influence demand?

Answer
Influence

Changes in consumer preferences increase or decrease demand depending on trends.

Term
Expectations

What effect do expectations about future prices have on demand?

Answer
Impact

Expecting price rises increases current demand; expecting price drops delays purchases.

Term
Number of Consumers

How does the number of consumers affect demand?

Answer
Effect

More consumers usually lead to higher demand.

Term
Promotion

What role does promotion play in demand?

Answer
Role

Promotion increases awareness and desirability, boosting demand.

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📈 Factors Affecting Demand Quiz

1. What is the law of demand?

The law of demand states there is an inverse relationship between price and demand.

2. If consumer incomes increase, demand for which type of good is likely to increase?

Higher income allows consumers to buy more normal goods.

3. If the price of butter increases, what happens to the demand for margarine?

Butter and margarine are substitutes, so demand for margarine rises.

4. Which factor directly influences demand through advertising?

Promotion increases consumer interest and demand.

5. What impact does an increase in the number of consumers usually have on demand?

A larger consumer base creates more potential buyers.

📊 Results

  • Notes and Quiz
  • Business
  • A Level
  • Marketing
  • OCR