Business · 9609 AS and A Level
Every calculation on the Cambridge 9609 syllabus. What it is, when to use it, a worked example and what the answer tells you. AS topics come first, then the A Level ones.
AS · June 2027
A Level
AS and A Level
Use it whenyou need the money coming in from sales. Also called sales revenue or turnover.
Example 1
A barber charges £18 a cut and does 450 cuts a month. Find the monthly revenue.
Times the price by the quantity
£18 × 450 = £8,100
Example 2 · find the quantity
A café takes £6,000 in a month selling coffee at £2.50. How many coffees did it sell?
Turn the formula round: quantity = revenue ÷ price
£6,000 ÷ £2.50 = 2,400 coffees
Revenue is not profit. It is the money in before any costs are paid.
Use it whenyou need all the costs at one level of output. Fixed costs (rent, salaries) stay the same. Variable costs (materials) go up with every unit made.
Example 1
A candle maker has fixed costs of £2,000 a month. Each candle costs £3 in materials. Find the total cost of making 500 candles.
Find total variable cost
£3 × 500 = £1,500
Add the fixed costs
£2,000 + £1,500 = £3,500
Example 2 · find the variable cost per unit
Total cost is £4,400 for 600 candles. Fixed costs are £2,000. Find the variable cost per candle.
Take the fixed costs off
£4,400 − £2,000 = £2,400
Divide by the quantity
£2,400 ÷ 600 = £4
Use it whenyou need the cost of making one item on average. Useful for pricing and for economies of scale.
Example 1
Making 500 candles costs £3,500 in total. Find the unit cost.
Divide total cost by output
£3,500 ÷ 500 = £7 per candle
Example 2 · output doubles
Fixed costs are £2,000 and each candle costs £3 in materials. Find the unit cost at 1,000 candles.
Find total cost first
£2,000 + (£3 × 1,000) = £5,000
Divide by output
£5,000 ÷ 1,000 = £5 per candle
What it tells youUnit cost fell from £7 to £5 because the same fixed costs are spread over more candles. That is why higher output can mean lower prices or higher profit.
Use it whenyou need to know if the business made money. A negative answer is a loss.
Example 1 · profit
A candle maker sells 500 candles at £10. Fixed costs are £2,000 and materials are £3 a candle. Find the profit.
Find revenue
£10 × 500 = £5,000
Find total cost
£2,000 + (£3 × 500) = £3,500
Take cost from revenue
£5,000 − £3,500 = £1,500 profit
Example 2 · loss
Same business, but it only sells 250 candles.
Find revenue
£10 × 250 = £2,500
Find total cost
£2,000 + (£3 × 250) = £2,750
Take cost from revenue
£2,500 − £2,750 = −£250, a loss of £250
Use it whena figure (sales, profit, costs) has gone up or down and you want the change as a percentage. Case studies are full of these.
Example 1 · increase
Revenue rose from £40,000 to £46,000. Find the percentage increase.
Find the change
£46,000 − £40,000 = £6,000
Divide by the ORIGINAL
6,00040,000 = 0.15
Times by 100
0.15 × 100 = 15% increase
Example 2 · decrease
Profit fell from £12,000 to £9,000. Find the percentage decrease.
Find the change
£12,000 − £9,000 = £3,000
Divide by the ORIGINAL
3,00012,000 = 0.25
Times by 100
0.25 × 100 = 25% decrease
Always divide by the old figure, never the new one.
Use it whenyou need to know how much each sale adds towards paying the fixed costs. It is the first step for break-even.
Example
A candle sells for £10 and costs £3 in materials. Find the contribution per candle.
Take variable cost from price
£10 − £3 = £7
What it tells youEach candle sold puts £7 towards the fixed costs. Once the fixed costs are covered, every extra £7 is profit.
Use it whenyou need profit quickly with contribution costing, or you are deciding whether to accept an order.
Example 1
Contribution is £7 a candle and 500 are sold. Find the total contribution.
Times contribution per unit by quantity
£7 × 500 = £3,500
Example 2 · profit
Fixed costs are £2,000. Find the profit.
Take fixed costs from total contribution
£3,500 − £2,000 = £1,500
Same answer as revenue minus total cost. It is just quicker.
Use it whenyou need how many units must be sold to cover all costs, so profit is zero.
Example 1
A barber has fixed costs of £1,200 a month. He charges £15 a cut and each cut costs £3 in products. Find the break-even output.
Find contribution per unit
£15 − £3 = £12
Divide fixed costs by it
£1,200 ÷ £12 = 100 cuts a month
Example 2 · not a whole number
Fixed costs £2,000, contribution £7 a candle. Find the break-even output.
Divide fixed costs by contribution
£2,000 ÷ £7 = 285.71...
Always round UP. 285 candles would still make a small loss
286 candles
The answer is in units (cuts, candles, rooms), not pounds. To get break-even revenue, times it by the price.
Use it whenyou're asked how far sales could fall before the business makes a loss.
Example
The barber breaks even at 100 cuts and actually does 160 cuts a month. Find the margin of safety.
Take break-even from actual output
160 − 100 = 60 cuts
What it tells youSales could fall by 60 cuts a month before he makes a loss. A bigger margin of safety means less risk.
Use it whenthe owner wants a set amount of profit and you need how many units that takes.
Example
The barber has fixed costs of £1,200 and a contribution of £12 a cut. He wants £600 profit a month. How many cuts does he need?
Add the target profit to fixed costs
£1,200 + £600 = £1,800
Divide by contribution per unit
£1,800 ÷ £12 = 150 cuts
If it is not a whole number, round UP, just like break-even.
Use it whenyou're filling in or checking a cash flow forecast. This month's closing balance is next month's opening balance.
Example 1
Opening balance £2,000. Cash in £8,500. Cash out £10,000. Find the net cash flow and closing balance.
Find net cash flow
£8,500 − £10,000 = −£1,500
Add it to the opening balance
£2,000 + (−£1,500) = £500
Example 2 · goes negative
Opening balance £500. Cash in £6,000. Cash out £7,200. Find the closing balance.
Find net cash flow
£6,000 − £7,200 = −£1,200
Add it to the opening balance
£500 + (−£1,200) = −£700
What it tells youA negative closing balance means the business needs an overdraft or must cut spending, chase customers or delay payments to get through the month.
Use it whenyou need the money available to run the business day to day. Current assets: inventory, trade receivables, cash. Current liabilities: trade payables, overdraft.
Example
A shop has inventory £20,000, trade receivables £15,000 and cash £10,000. It owes suppliers £25,000 and has an overdraft of £5,000. Find its working capital.
Add up current assets
£20,000 + £15,000 + £10,000 = £45,000
Add up current liabilities
£25,000 + £5,000 = £30,000
Take one from the other
£45,000 − £30,000 = £15,000
What it tells youPositive working capital means it can pay its short-term bills. Negative is a warning sign. Too much can also be bad: cash stuck in stock earns nothing.
Use it whenyou compare what happened with what was planned. Good for profit = favourable. Bad for profit = adverse.
Example 1 · revenue
Budgeted revenue was £20,000. Actual revenue was £18,000.
Find the difference
£20,000 − £18,000 = £2,000
Revenue is BELOW budget, which is bad for profit
£2,000 adverse (A)
Example 2 · cost
Budgeted wages were £5,000. Actual wages were £4,600.
Find the difference
£5,000 − £4,600 = £400
A cost BELOW budget is good for profit
£400 favourable (F)
Revenue above budget = F. Revenue below = A. Cost below budget = F. Cost above = A.
Use it whenyou need one firm's slice of the whole market. Also a way of measuring business size.
Example
A firm sells £60,000 in a market worth £300,000. Find its market share.
Divide the firm's sales by the market
60,000300,000 = 0.2
Times by 100
0.2 × 100 = 20%
Check both figures are in the same units. £60,000 and £0.3m must both become pounds first.
Use it whenyou need how fast the whole market is growing. It feeds into the Boston Matrix.
Example
A market was worth £400,000 last year and £500,000 this year. Find the market growth.
Find the change
£500,000 − £400,000 = £100,000
Divide by the OLD size
100,000400,000 = 0.25
Times by 100
0.25 × 100 = 25%
Use it whena firm sets its price by adding a percentage on top of what the product costs.
Example 1 · find the price
A candle costs £8 to make. The mark-up is 25%. Find the selling price.
Find the mark-up
£8 × 25 ÷ 100 = £2
Add it to the cost
£8 + £2 = £10
Example 2 · find the mark-up %
An item costs £20 and sells for £26. Find the mark-up.
Find the mark-up in pounds
£26 − £20 = £6
Divide by the COST and times by 100
620 × 100 = 30%
The mark-up is a percentage of the cost, never of the selling price.
Use it whenyou need to know how much sales react to a price change, and whether a price rise will raise or cut revenue.
Example 1 · elastic
Price rises by 10% and sales fall by 25%. Find the PED.
Quantity goes on top
−25 ÷ 10 = −2.5
Ignore the minus. Above 1 means elastic
Elastic: sales react a lot
Example 2 · from prices and sales
A barber raises his price from £10 to £11. Sales fall from 400 to 380 cuts. Find the PED.
% change in quantity
(380 − 400) ÷ 400 × 100 = −5%
% change in price
(11 − 10) ÷ 10 × 100 = 10%
Divide quantity by price
−5 ÷ 10 = −0.5
Below 1, so inelastic. Check revenue
£10 × 400 = £4,000 → £11 × 380 = £4,180
What it tells youInelastic (below 1): a price rise increases revenue. Elastic (above 1): a price rise cuts revenue, so a price cut may be better.
Use it whenyou need how much each worker produces.
Example
5 bakers make 1,000 loaves a week. Find the labour productivity.
Divide output by workers
1,000 ÷ 5 = 200 loaves per baker per week
What it tells youHigher productivity means a lower labour cost for each unit, so the firm can cut prices or earn more profit. Always say the time period.
Use it whenyou need the share of the workforce that left in a year.
Example
A café started the year with 40 staff and ended with 44. 6 staff left. Find the labour turnover to 1 decimal place.
Find the average number of staff
(40 + 44) ÷ 2 = 42
Divide leavers by the average
642 = 0.1428...
Times by 100 and round
14.3%
What it tells youHigh turnover means extra recruitment and training costs and may point to low morale. Compare it with other firms in the industry.
Use it whenyou need how much of its capacity a business is actually using.
Example
A hotel has 80 rooms. Tonight 60 are full. Find the capacity utilisation.
Divide output by maximum capacity
6080 = 0.75
Times by 100
75%
What it tells youHigh utilisation spreads fixed costs, so unit costs are low. Near 100% leaves no room for extra orders or maintenance and staff may be stretched. Low utilisation means high unit costs.
Use it whenyou need how much value the business creates through its own work, branding or service.
Example
A café sells a sandwich for £4.50. The bread and fillings cost £1.20. Find the added value.
Take bought-in materials from price
£4.50 − £1.20 = £3.30
Added value is not profit. Wages, rent and other costs still come out of the £3.30.
Use it whenyou're reading an inventory control chart. Lead time is how long a delivery takes to arrive.
Example 1 · reorder level
A shop uses 40 units a day. Deliveries take 5 days. Buffer stock is 100 units. Find the reorder level.
Times daily usage by lead time
40 × 5 = 200
Add the buffer stock
200 + 100 = 300 units
Example 2 · reorder quantity
Maximum stock is 800 units and buffer stock is 100 units. How much should be ordered each time?
Take buffer from maximum
800 − 100 = 700 units
Use it whenyou're building or reading a statement of profit or loss. Cost of sales is the cost of the goods actually sold.
Example 1
Revenue £200,000. Cost of sales £80,000. Find the gross profit.
Take cost of sales from revenue
£200,000 − £80,000 = £120,000
Example 2 · find cost of sales first
Opening inventory £10,000, purchases £85,000, closing inventory £15,000.
Add opening inventory and purchases
£10,000 + £85,000 = £95,000
Take off closing inventory (not sold yet)
£95,000 − £15,000 = £80,000
Use it whenyou're working down a statement of profit or loss. Expenses are overheads like wages, rent and marketing. Finance costs are interest.
Example 1
Gross profit £120,000. Expenses £80,000. Find the operating profit.
Take expenses from gross profit
£120,000 − £80,000 = £40,000
Example 2
Finance costs are £5,000 and tax is £7,000. Find the profit for the year.
Take off finance costs
£40,000 − £5,000 = £35,000
Take off tax
£35,000 − £7,000 = £28,000
Use it whena non-current asset (van, machine) loses value over time. Residual value is what it can be sold for at the end.
Example 1
A van costs £24,000. It will last 5 years and then sell for £4,000. Find the annual depreciation.
Take residual value from cost
£24,000 − £4,000 = £20,000
Divide by the years
£20,000 ÷ 5 = £4,000 a year
Example 2 · net book value
What is the van worth in the accounts after 3 years?
Find 3 years of depreciation
3 × £4,000 = £12,000
Take it from the cost
£24,000 − £12,000 = £12,000
Use it whenyou need how much of each £1 of sales is left after paying for the goods sold.
Example
Revenue £200,000. Gross profit £120,000. Find the gross profit margin.
Divide gross profit by revenue
120,000200,000 = 0.6
Times by 100
60%
What it tells you60p of every £1 of sales is left after the cost of the goods. A falling margin can mean rising supplier costs or price cutting.
Use it whenyou need how much of each £1 of sales is left after ALL operating costs.
Example
Revenue £200,000. Operating profit £40,000. Find the profit margin.
Divide operating profit by revenue
40,000200,000 = 0.2
Times by 100
20%
What it tells youCompare it with the gross margin. A big gap (here 60% down to 20%) means expenses are high, so look at overheads.
Use it whenyou need how much profit each £1 invested in the business earns. It is the key profitability ratio.
Example
Equity £150,000. Non-current liabilities £50,000. Operating profit £40,000. Find the ROCE.
Find capital employed
£150,000 + £50,000 = £200,000
Divide operating profit by it
40,000200,000 = 0.2
Times by 100
20%
What it tells youHigher is better. Compare it with the interest rate: if ROCE is below what a bank would pay, the owners could do better elsewhere.
Use it whenyou need to judge liquidity: can the business pay its short-term debts?
Example 1
Current assets £60,000. Current liabilities £30,000. Find the current ratio.
Divide current assets by current liabilities
£60,000 ÷ £30,000 = 2, written 2 : 1
Example 2 · a worry
Current assets £18,000. Current liabilities £24,000.
Divide
£18,000 ÷ £24,000 = 0.75, written 0.75 : 1
What it tells youAbout 1.5 to 2 is often seen as comfortable. Below 1 means it may struggle to pay short-term debts. Far above 2 can mean too much cash or stock sitting idle.
Use it whenyou want a stricter liquidity test. Inventory is left out because it can be slow to turn into cash.
Example
Current assets £60,000, including inventory of £30,000. Current liabilities £30,000. Find the acid test ratio.
Take inventory off current assets
£60,000 − £30,000 = £30,000
Divide by current liabilities
£30,000 ÷ £30,000 = 1, written 1 : 1
What it tells youAround 1 is usually fine. Below 1 means it relies on selling stock to pay its debts. The acid test is never bigger than the current ratio.
Use it whenyou need how much of the long-term finance comes from borrowing. Capital employed = equity + non-current liabilities.
Example 1 · low gearing
Equity £150,000. Non-current liabilities £50,000. Find the gearing.
Find capital employed
£150,000 + £50,000 = £200,000
Divide long-term borrowing by it and times by 100
50,000200,000 × 100 = 25%
Example 2 · high gearing
Equity £200,000. Non-current liabilities £300,000.
Find capital employed
£200,000 + £300,000 = £500,000
Divide and times by 100
300,000500,000 × 100 = 60%
What it tells youOver about 50% is highly geared: lots of interest to pay, risky if interest rates rise, and harder to borrow more. Low gearing means room to borrow for growth.
Use it whenyou need how many times a year the stock is sold and replaced.
Example
Cost of sales £80,000. Opening inventory £10,000. Closing inventory £30,000. Find the inventory turnover.
Find average inventory
(£10,000 + £30,000) ÷ 2 = £20,000
Divide cost of sales by it
£80,000 ÷ £20,000 = 4 times a year
What it tells youHigher is usually better: stock is not sitting around. It matters most for fresh food or fashion. Compare with similar firms.
Use it whenyou need how long customers take, on average, to pay what they owe.
Example
Trade receivables £15,000. Revenue £200,000. Find the receivables days to the nearest day.
Divide receivables by revenue
15,000200,000 = 0.075
Times by 365 and round
0.075 × 365 = 27.375 → 27 days
What it tells youFewer days is better for cash flow. If it is longer than the credit terms the firm gives (say 30 days), it should chase customers.
Use it whenyou need how long the business takes, on average, to pay its suppliers.
Example
Trade payables £3,000. Cost of sales £36,500. Find the payables days.
Divide payables by cost of sales
3,00036,500 = 0.0821...
Times by 365
30 days
What it tells youMore days helps cash flow, but pay too late and suppliers may stop giving credit. Compare it with receivables days: ideally customers pay you before you pay suppliers.
Use it whena shareholder wants to know the yearly return from dividends compared with what the share costs.
Example 1
A share costs 400p and pays a dividend of 20p. Find the dividend yield.
Divide dividend by share price (both in pence)
20400 = 0.05
Times by 100
5%
Example 2 · find dividend per share first
Total dividends £1,500,000. 10,000,000 shares. Share price 300p.
Find dividend per share
£1,500,000 ÷ 10,000,000 = £0.15 = 15p
Divide by share price and times by 100
15300 × 100 = 5%
Put both figures in pence (or both in pounds) before dividing.
Use it whenyou need how many times the dividend could be paid out of this year's profit.
Example
Profit for the year £30,000. Dividends paid £10,000. Find the dividend cover.
Divide profit by dividends
£30,000 ÷ £10,000 = 3 times
What it tells youHigher cover means the dividend is safer and more profit is kept for growth. Below 1 means it paid out more than it earned.
Use it whenyou compare a share's price with the profit behind each share.
Example 1
Share price 400p. Earnings per share 40p. Find the P/E ratio.
Divide price by earnings per share
400 ÷ 40 = 10
Example 2 · find earnings per share first
Profit for the year £2,000,000. 8,000,000 shares. Share price 350p.
Find earnings per share
£2,000,000 ÷ 8,000,000 = £0.25 = 25p
Divide price by it
350 ÷ 25 = 14
What it tells youA high P/E means investors are paying a lot for each £1 of profit because they expect strong growth.
Use it whenyou need how long an investment takes to pay back its cost from its net cash flows.
Example
A gym spends £50,000 on new machines. Net cash flows: year 1 £20,000, year 2 £20,000, year 3 £24,000. Find the payback period.
Add up year by year (cumulative)
Year 1: £20,000 · Year 2: £40,000 · Year 3: £64,000
It pays back during year 3. Find what is left after year 2
£50,000 − £40,000 = £10,000
Divide by year 3's cash flow and times by 12
10,00024,000 × 12 = 5 months
Put it together
2 years 5 months
What it tells youShorter is better, especially when cash is tight or the future is uncertain. But payback ignores cash after payback and the fact that later money is worth less.
Use it whenyou compare the yearly profit from a project with its cost, as a percentage. Also called the average rate of return.
Example
Machines cost £50,000. Net cash flows over 4 years: £20,000, £20,000, £24,000, £16,000. Find the ARR.
Add up all the net cash flows
£20,000 + £20,000 + £24,000 + £16,000 = £80,000
Take off the cost to get total profit
£80,000 − £50,000 = £30,000
Divide by the number of years
£30,000 ÷ 4 = £7,500 a year
Divide by the cost and times by 100
7,50050,000 × 100 = 15%
What it tells youCompare it with other projects and with the interest rate on a loan. 15% beats a 5% loan rate, so it looks worthwhile.
Use it whenyou need to allow for money later being worth less than money now. The discount factors are always given.
Example 1 · positive
Cost £50,000. Net cash flows: year 1 £20,000, year 2 £20,000, year 3 £24,000. Discount factors at 10%: 0.909, 0.826, 0.751. Find the NPV.
Times each year's cash flow by its discount factor
£20,000 × 0.909 = £18,180
Year 2
£20,000 × 0.826 = £16,520
Year 3
£24,000 × 0.751 = £18,024
Add up the present values
£18,180 + £16,520 + £18,024 = £52,724
Take off the cost
£52,724 − £50,000 = £2,724
Example 2 · negative
Cost £40,000. £15,000 a year for 3 years. Same discount factors.
Present values
£13,635 + £12,390 + £11,265 = £37,290
Take off the cost
£37,290 − £40,000 = −£2,710
What it tells youPositive NPV: the project earns more than the discount rate, so it is worth doing on financial grounds. Negative NPV: reject it, or look for strong non-financial reasons.
Use it whenyou need how sales react when people's incomes change, for example in a recession.
Example 1 · luxury
Incomes rise by 5% and sales of holidays rise by 10%. Find the YED.
Quantity goes on top
10 ÷ 5 = 2
Positive and above 1
Normal good, and a luxury
Example 2 · inferior
Incomes rise by 4% and sales of value beans fall by 2%. Find the YED.
Quantity goes on top
−2 ÷ 4 = −0.5
Negative
Inferior good
What it tells youThe sign matters. Positive: normal good, sales rise as people get richer. Negative: inferior good, sales may rise in a recession.
Use it whenyou need to judge whether extra spending on adverts or offers is worth it.
Example
A shop raises its advert spending by 25% and sales rise by 5%. Find the promotional elasticity.
Divide the sales change by the advert change
5 ÷ 25 = 0.2
What it tells you0.2 is low: sales rose much more slowly than the advert budget, so the extra spending may not pay for itself. Above 1 means promotion is very effective.
Use it whenyou need how a rival's or a partner product's price change affects your sales.
Example 1 · complements
Printer prices rise by 10% and ink sales fall by 4%. Find the XED.
B's quantity change on top
−4 ÷ 10 = −0.4
Negative
Complements: bought together
Example 2 · substitutes
Costa raises prices by 10%. Sales at the Caffè Nero next door rise by 3%.
B's quantity change on top
3 ÷ 10 = 0.3
Positive
Substitutes: rivals you can swap
Use it whenyou need to smooth out the ups and downs in sales to see the trend.
Example
A café's sales in £000: Jan 10, Feb 14, Mar 12, Apr 16, May 20. Find the 3-month moving averages.
Add the first three months and divide by 3. It sits in the middle month (Feb)
(10 + 14 + 12) ÷ 3 = 12
Slide along one month (Mar)
(14 + 12 + 16) ÷ 3 = 14
Slide again (Apr)
(12 + 16 + 20) ÷ 3 = 16
What it tells youThe trend is rising by about £2,000 a month. Extend it to forecast, but remember it assumes the past pattern carries on.
With 4 periods (quarters), the average falls between two quarters, so you average each pair of 4-period averages to centre it.
Use it whenyou need how much work time is lost to staff being off.
Example
A gym has 10 staff, each meant to work 200 days a year. Altogether they were absent for 80 days. Find the absenteeism rate.
Find total working days: staff × days each
10 × 200 = 2,000
Divide days absent by it
802,000 = 0.04
Times by 100
4%
What it tells youLower is better. A rising rate can point to low morale or poor working conditions and pushes up costs for cover.
Use it whena question asks you to draw, label or read a break-even chart. It shows break-even output, margin of safety and profit or loss at any output.
How to draw it
A barber: fixed costs £1,200 a month, price £15 a cut, products £3 a cut. Up to 200 cuts.
Fixed costs: a flat line
£1,200 at every output
Total costs: start at fixed costs, work out the top end
£1,200 + (£3 × 200) = £1,800
Revenue: start at 0, work out the top end
£15 × 200 = £3,000
Draw each line with a ruler and label all three
plus both axes, with units
How to read it
Break-even: where revenue meets total costs. Read down
100 cuts (revenue £1,500)
Margin of safety: actual output − break-even
160 − 100 = 60 cuts
Profit at an output: the gap from total costs up to revenue
at 200 cuts: £3,000 − £1,800 = £1,200
Left of break-even the gap is a loss. Right of it the gap is profit. Exam limits: it assumes every unit made is sold, the price stays the same and costs are straight lines.
Use it whena question asks what happens to break-even if the price or costs change. Redraw only the line that changes.
Example · price rise
The barber raises his price from £15 to £18.
Only revenue changes. Find its new top end
£18 × 200 = £3,600
The new line is steeper. Read where it meets total costs
80 cuts
Check with the formula
£1,200 ÷ (£18 − £3) = 80 cuts
Example · fixed cost rise
Rent goes up, so fixed costs rise to £1,500.
Fixed costs and total costs both move up £300. Same slope
total costs now start at £1,500
Revenue meets the new total costs later
£1,500 ÷ £12 = 125 cuts
A higher price lowers break-even, but sales may fall. Say so in an evaluation answer.
Use it whenexplaining how a change in demand or supply affects price. Syllabus: factors affecting demand and supply, and how they interact with price.
How to draw it
Label the axes
price up the side, quantity along the bottom
Draw D going down and S going up. Label both
mark P and Q where they cross
How to read it
Demand for a product rises (from D to D2).
Read the old crossing point
£9, 350 units
Shift demand right and read the new crossing point
£11, 450 units
Say what happened
price and quantity both rise
Shift right = more, left = less. Demand up: price up. Supply up: price down. A change in price alone moves you along a curve. It does not shift it.
Use it whenasked what stage a product is at, or how a firm could keep sales up. Sales go up the side, time along the bottom.
How to read it
Introduction: low sales, high promotion costs
usually a loss
Growth: sales rise fast, rivals start to copy
profit starts
Maturity: sales level off, competition is strongest
time for an extension strategy
Decline: sales and profit fall
cut costs or withdraw the product
Extension strategies
Use them in maturity, before decline sets in
new markets, new uses, new design, new packaging, special offers
Draw the extension strategy as a new bump or a dashed line rising off the curve in late maturity. Cash flow is usually negative in introduction and strongest in maturity.
Use it whenyou analyse a firm's range of products (its portfolio). Circle size shows each product's sales.
How to read it
Find the product's market share. High is on the LEFT
left half = high share
Find its market growth. High is at the top
top half = high growth
Name the box, then say what to do
cash cow: milk it · star: invest · question mark: decide · dog: drop or keep
Cash cows make the money that pays for stars and question marks. A good portfolio has a balance. It is a snapshot: products move between boxes over time.
Use it whenyou explain PED with a diagram, or read two points off a demand curve to work out PED. Revenue = price × quantity = the rectangle under the point.
How to read it
Price falls from £10 (400 sold) to £8 (600 sold).
% change in quantity (from the first point)
(600 − 400) ÷ 400 × 100 = 50%
% change in price
(8 − 10) ÷ 10 × 100 = −20%
Quantity ÷ price, ignore the minus
50 ÷ 20 = 2.5, elastic
Check revenue (rectangle)
£10 × 400 = £4,000 → £8 × 600 = £4,800
Elastic: a price cut raises revenue. Inelastic: a price rise raises revenue. On a straight-line demand curve, PED changes along the line, so always work it out between the two points given.
Use it whena question asks you to plot a trend or forecast sales from a four-period centred moving average.
How to draw it
Plot actual sales for each quarter and join them
a zig-zag: that is the seasonal pattern
Plot each centred moving average at its own quarter
the first one sits on Q3 of year 1
Draw a straight line through the averages
the trend
How to read it
Extend the trend line to the quarter you want
Q1 2026: 100 (£000)
Average seasonal variation for Q1 = actual − trend, averaged
Q1 2025: 70 − 80 = −10
Forecast = trend + seasonal variation
100 + (−10) = 90 (£000)
The further you extend the line, the less reliable the forecast. It assumes the past pattern carries on, so mention changes like a new rival or a recession.