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2021 BTEC Business Level 3:
Unit 1 - Exploring Business
(DISTINCTION*) Assignment
2
Learning aim D: D2
Relations between demand, supply and price
Demand is the quantity of a good or service that consumers and
businesses are willing and able to buy at a given price in a given
time period.
The relationship between supply, demand and price is when the
price of a product is affordable the demand of the product
increases therefore the supply of the product increases allowing
business to increase their product price. However, if the price of
the product is not affordable then the demand of the product
would decrease therefore decreasing the supply of the product.
Five factors affecting the demand are affordability,
competition, availability of substitutes, level of gross domestic
products, needs and aspirations of consumers.
Affordability is whether or not customers can afford or are
willing to pay for the given offer. Nike’s target market are all
individuals in different age groups. If the price for Nike products
such as shoes or clothing are too high, then there will be a
decrease in demand for Nike products as customers may not be
satisfied to pay the high price and may move to a different
,company to fulfill their needs. For example, Nike tracksuit costs
£75 and Adidas tracksuit costs £60, customers with a low income
would purchase Adidas brand tracksuit because it is cheaper than
the Nike tracksuit. This would reduce Nike’s demand therefore
reducing Nike’s supply of clothing because Nike would not
manufacture extra clothing as customers are not able to afford
them. The demand for goods depends upon the incomes of the
customers. The greater the income, the greater the demand will
be for their goods. The greater the income the greater the
purchasing power. If customers’ income is low, they will go for
cheaper and better quality product clothing making the demand
go higher. For example, customers will purchase Nike Air Force 1
for their fair price of £50 instead of Gucci shoes which are priced
at £705. If Nike products are affordable then the demand for their
goods would increase therefore their supply would also increase.
In the past, Nike has responded to this factor by decreasing their
product price through discounts in order for people to afford. For
example, Nike has decreased the price of their Air max shoes in
order for people to afford them and to increase their demand. In
the future, Nike should continue decreasing their price and offer
discounts in order for people to afford their goods. This would
attract more customers and their sales volume would increase.
The success of this will depend on if Nike has a lower total cost as
this will allow them to decrease their price.
Competition determines market price because the less shoes
there are for sale the more demand there will be for the particular
product. Nike’s top competitor is Adidas. They sell the similar
goods for similar prices for example Nike Air Force 1 costs £55 1
and Adidas superstar original costs £50 2. If one of Nike
competitors raise their prices, then the demand for Nike goods
would increase because customers would be looking to purchase
cheaper good quality goods. This would result in an increase in
1 https://www.jdsports.co.uk/product/black-nike-air-force-1-low-junior/014125/
2https://www.jdsports.co.uk/product/adidas-originals-superstar-junior/15966909/
, supply. Due to high supply and demand Nike would be able to
decrease their prices and attract more customers. However,
demand can reduce significantly if the competition reduces the
price of their products, quality and services. For example, due to
Nike’s relevant price there is more competition; so the better the
price of a different company the more
customers will get attracted to the different
company product causing the demand of Nike
products to fall. If one of their competitors
lowers their prices, the demand for Nike goods
would decrease as customers would purchase
the cheaper brand goods. This would reduce
Nike’s supply. If this happens Nike would have
to decrease their price in order to sell their
goods; this would cause lower revenue and profit. Furthermore, if
Nike’s competitors introduce a new product then this would
decrease Nike’s demand therefore decreasing the supply and
price in order to sell their leftover stock. In the past, Nike has
increased their competition level by producing a higher variety of
goods such as clothing. This would attract more customers and
increase their purchase volume. Also Nike have high standards
therefore it will be difficult for their competitors to overtake,
giving Nike the advantages of staying in lead. In the future, Nike
should continue being innovative as this would lower their
competition as they would be able to attract more customers. The
success of this depends on if Nike has a high profit level in order
to invest in new innovations.
Availability of substitutes; the Nike business may resort to a
substitute which is inferior or superior or seek out alternative and
more competitively priced suppliers. Therefore, alternative
demand on supply and demand from all sides of the operation. A
business must consider all the external factors and undertake a
situational analysis before taking the risk of bringing in a superior
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