Business Environment Chapter 6 Demand ++

Business Environment
Chapter 6 Determinants of Demand
What decides the Demand

Demand is: 1. how many of a product or service people wish to buy. 2. the people must be able to buy the thing. So demand is the desire and ability to buy a product/service. It is not demand if you say you want to buy a house, but do not have the means to buy it.
What decides the Demand

1. Price 2. Price of substitute products 3. Price of complementary products 4. Incomes salaries and wages 5. Advertising 6. Demographics population how many people, age, tastes 7. Outside factors weather 8. Fashions e.g. right now Apple is in demand. 9. Brand image e.g. what people think of the product or Co e.g. BMW is a good, sporty luxury car. 10. Economy poor economy people save, good economy people spend more.
Price
Demand Curve
This shows the relationship between quantity demanded and price. Usually the higher the price the less the demand. The lower the price the higher the demand.
Demand Curve
The Graph
If you notice as the price is at first very high There are few buyers. As the price drops they increase.
Another way to look at it

Serie 1
25
20
15 Serie 1 10
0 Categoria 1 Categoria 2 Categoria 3 Categoria 4 Categoria 5 Categoria 6 Categoria 7 Categoria 8 Categoria 9 Categoria 10
Price elasticity of demand

25
20
15
Price
10 5 Serie 1 Colonna1 Serie 3
0
1 2 3 4 5
Colonna1 Serie 1 6 7 8 9 Price
10
11
Changes in demand
Price Elasticity of demand

A Co will want to know how their customers will react to a change in price. Elasticity means how much or how little change happens when price goes up or down.
Elasticity of Demand = _% in Quantity Demanded % in Price
Elasticity of demand
= Change
= (Q2 Q1) X 100 (P2 P1) X 100 Old price 24 Demand =30
Q= Quantity(how many)
P= Price
new price New Demand
20 50
Example of elasticity
_% in Quantity Demanded % in Price = (Q2 Q1) X 100 (P2 P1) X 100 (50 30)*100 (24 20)*100 Elasticity= 500% This product is very elastic!
Meaning of elasticity
% is >1 Product is very elastic This means a small change in price will lead to a bigger change in demand. Any price increase, will really hurt the Co A price decrease will really help the Co.
Meaning of Elasticity
% is =1 This is called unit elasticity.
The demand the same as the price change.
Meaning of Elasticity
% <1 This means that there is a smaller change in demand compared to the price change. If a Co changes the price, the people will not change their buying so much! This is called INELASTIC E.g. things like smoking, demand is inelastic. In this situation the Co should raise its price. The Co will sell less but make more money!
Factors affecting elasticity of demand

1. Income elasticity. This is a measure of how elastic/inelastic a change in income is to demand. That is if the person is getting more will he buy more Or if the person is getting more money will he buy the same or a little more.
Formula for Income Elasticity of demand

% in Quantity Demanded % in Income e.g. (45 40)*100____ (3500 -3500)* 100 = 0.01 = 10% The income elasticity is inelastic!
Meaning of Income Elasticity

% is >1 = Very elastic A small change in income will have a big effect on Sales. If income is elastic. This means if people get more mony they will buy more
Understanding the elasticity of income

% is =1 A change in income is equal to a change in quantity demanded.
Understanding the elasticity of income

% is <1 A change in income means that there is a small change in quantity demanded.
So the more money people get the less they buy. Maybe because they are buying better things. In my country. If people get more money They buy less vegetables, pork and more beef and chicken Or move from margerine to jams, butter
Cross price elasticity of demand

This means if one products price affects the price of another. % in the price of Product X % in the price of Product Y
Examples of cross price elasticity

If the % is >1 Then a small change in the price of one will affect the other E.g. Butter and margarine. If the % is <1 Then the products are complementary. E.g. Printers and refill cartridges.

Business Environment Chapter 6 Demand ++

Uploaded by

Copyright:

Available Formats

Business Environment Chapter 6 Demand ++

Uploaded by

Document Information

Original Description:

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Business Environment Chapter 6 Demand ++

Uploaded by

Copyright:

Available Formats

Business Environment

Chapter 6 Determinants of Demand

What decides the Demand

What decides the Demand

Another way to look at it

Price elasticity of demand

Colonna1 Serie 1 6 7 8 9 Price

Price Elasticity of demand

Elasticity of Demand = _% in Quantity Demanded % in Price

new price New Demand

The demand the same as the price change.

Factors affecting elasticity of demand

Formula for Income Elasticity of demand

Meaning of Income Elasticity

Understanding the elasticity of income

Understanding the elasticity of income

Cross price elasticity of demand

Examples of cross price elasticity

You might also like