1.2 Market

Question 1

Define demand

Answer 1

Demand is the amount of a product society is willing and able to buy at a set price at a given point in time.

Question 2

7 Factors that lead to a change in demand

Answer 2

1. Changes in the price of substitutes and complementary goods.
2. Changes in consumer income.
3. Fashions, tastes and preferences.
4. Advertising and branding.
5. Demographics.
6. External shocks.
7. Seasonality.

Question 3

Define substitute and complementary goods.

Answer 3

A substitute good acts as an alternative creating competition
A complementary food is bought alongside another good or service.

Question 4

Define supply

Answer 4

Supply is the amount of a good or service that producers are willing and able to sell at any given price.

Question 5

How does price affect demand

Answer 5

As price decreases, demand increases. Vice versa

Question 6

How does price affect supply

Answer 6

As price falls, quantity supplied decreases. Vice versa

Question 7

5 Factors that affect supply

Answer 7

1. Changes in cost of production
2. Introduction of new technology
3. Indirect taxes
4. Subsidies
5. External shocks

Question 8

Define price elasticity of demand

Answer 8

A measure of how responsive demand is to a change in price

Question 9

Formula for PED

Answer 9

%Change in demand / %Change in price

Question 10

6 Factors affecting PED

Answer 10

1. Branding
2. Income
3. Nature of good
4. Availability of substitutes
5. Price of competitor goods
6. Time

Question 11

Define income elasticity of demand

Answer 11

A measure of how responsive demand is to a change in income

Question 12

Formula for YED

Answer 12

%Change in demand / %Change in income