1.2 The Market Flashcards Preview

Buisness > 1.2 The Market > Flashcards

Flashcards in 1.2 The Market Deck (46)
Loading flashcards...
1

What is demand

the level of interest customers have in a product

2

How does price effect demand

-higher the price the lower effective demand (due to fewer customers wanting to pay high price)

-lower prices can affect demand as it may damage consumer perception of quality

3

What is a subsitute product

similar, rival product that consumers may choose instead

4

What is a complement product

a product whose use accompanies another, so petrol is a complementary product to cars

5

Explain the relationship between demand for a product and the price of its complements

-if price of complementary product rises- demand for original product falls

-e.g if price of petrol falls- demand for cars increases

6

How does change in consumer incomes affect demand

-what happens if income levels rise what happens to demand

-what happens when economies go through recession

-when do inferior goods see demand rise

-when do inferior goods fall in demand

-if income levels rise demand for normal goods rise- consumers have more income to spend

-however when economies go through recession- incomes fall- normal and luxury goods demand falls- consumers try to save money

-inferior goods see demand rise when incomes fall- to save money (e.g poundland)

-when incomes rise again consumers switch back to normal, luxury goods- fall in demand for inferior goods

7

Name 5 factors that affect demand- positively and negatively

-tastes and preferences- unpredictable changes- can positively and negatively affect demand

-advertising- lead to major short-term increase in demand

-demographics- changes in population- affect demand for individual products

-external shocks- (natural disasters, global pandemic) - hugely impact demand- unpredictable

-seasonality- affects demand (e.g weather- strawberries, XMAS)

8

How does supply have an effect on the profit a company makes

-the more a firm supplies, the more profit they will make

9

How does cost of production of a product affect supply

-if production costs rise, amount supplied will fall

-if production costs fall, amount supplied will rise

10

How does the introduction of technology within a business affect supply

-introduction of technology will lead to an increase in supply as

- lower production costs
-which offer higher profits

11

How does indirect taxes affect supply

-increase in indirect tax- increases costs- reduces supply

-decrease in indirect tax- cuts total costs- increases supply

12

What are indirect taxes

-taxes the government imposes on goods and service (VAT)

13

How do government subsidies affect supply

-cuts cost of production- subsidies increase supply

14

What are government subsidies

-opposite to tax
-occur when government wants to increase supply of a product (wind-powered energy)
-so offers subsidies to business

15

How do external shocks affect supply

-natural disasters reduce total quantity of item avaliable- price of item increases- production costs rise- reducing amount they are willing to supply

16

What happens if demand is higher than supply

-price of product will rise
-until demand falls abck to level of supply

17

What happens if supply is higher than demand

-price will fall
-stimulating more demand so product is sold

18

What is equilibrium in business

situation in a market where supply and demand are balanced- so price is stable

19

What are commodity markets

-markets for undifferentiated products

-e.g. raw materials

20

How can you work out equilibrium on a supply and demand graph

-equilibrium is where the supply line and demand line cross

21

What will occur to the demand curve if the price goes up

-demand curve moves to the right (rises)

22

What will occur to the demand curve if the price goes down

-demand curve moves to the left (falls)

23

What will occur to the supply curve if the price goes up

-supply curve moves to the left (falls)

24

What will occur to the supply curve if the price goes down

-supply curve moves to the right (rises)

25

What is price elasticity of demand

measures responsiveness of demand for a product to change its price

26

What is the formula for price elasticity of demand

% change in quantity demanded/ % change in price

27

what occurs if the product is price elastic and the price increases

-price increases
-revenue falls
-as small increase in price leads to fall in demand

28

what occurs if the product is price elastic and the price decrease

-effect on revenue
-explain

-revenue increases

-as small cut in price leads to large increase in demand

29

what occurs if the product is price inelastic and the price increases

-effect on revenue
-explain

-increases revenue

-as an increase in price leads to a small fall in demand

30

what occurs if the product is price inelastic and the price decreases

-effect on revenue
-explain

-revenue falls

-as price cut causes small increase in demand

31

What does it mean if price elasticity is between 0 and -1

product price is inelastic

so changes in price have smaller effect on demand/ sales

32

What does it mean if price elasticity is a negative number greater than 1

product is price elastic

changes in price have larger effect on demand/ sales

33

name 3 factors that influence price elasticity

-degree of product differentiation

-availability of direct substitutes

-branding and brand loyalty

34

Name 2 significant reasons of price elasticity

-help in forecasting sales- by considering impact of planned future price changes

-can help to decide on the best pricing strategy for increasing revenue

35

Name 2 reasons why price elasticity values change over time

-competitive markets firms affect extent products stand out from rivals

-unpredictability- undermine usefulness of price elasticity - hard to rlly know current price elasticity until after price has been changed and the effect on demand measured

36

how do you calculate income elasticity of demand

% change in demand/ % change in real incomes

37

Do inferior goods have a positive/ negative income elasticity

negative income elasticity

38

Do normal goods have a positive/ negative income elasticity

positive income elasticity

39

Do luxury goods have a positive/ negative income elasticity

positive income elasticity

40

What happens to inferior goods if

-changes in real income increase

-changes in real income decrease

-if real incomes increase- demand decreases- consumers stop buying cheaper goods- have more money

-if real incomes decrease- demand increases- consumers switch to these products to save money as their incomes fall

41

What happens to normal goods if

-changes in real income increases

-changes in real income decreases

-if real income increases- demand increases at same rate- affluent customers able to buy more of this product now

-if real income decreases- decrease at same rate- if consumers tighten their belts- cut back on these products

42

What happens to luxury goods if

-changes in real income increases

-changes in real income decreases

-if real income increases- increase at faster rate than real incomes- extra income will be spent on these products

-if real incomes decrease at a faster rate than real incomes- first products to disappear from customers shopping baskets when they feel they need to tighten their belts

43

Name the 2 factors that affect income elasticity

-indulgences- things we treat ourselves with when we can afford it-more sensitive t changes in income

-necessities- basic items we always expect to buy

44

Name 3 significant factors of income elasticity

-sales forecasting- knowledge of reaction of product to change in real incomes allows business to forecast sales

-financial planning- sales forecasts can be factored into budgets and financial plans- prevents supplying too much/ little of a product

-product portfolio management- ensure product portfolios contain products with a range of income elasticities- to prevent critical impact on sales if changes in real income occur

45

What does it mean if a product is price elastic

product = elastic if price change causes change in demand/ supply

46

What does it mean if a product is price inelastic

product = inelastic if price change doesnt cause change in demand/ supply