1.2 The Market Flashcards

1
Q

What is Demand?

A

demand is the amount of a product that consumers are willing and able to purchase at any given price

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2
Q

What factors lead to a change in demand?

A

-Change in the price of substitutes e.g. pepsi and coke
-Price of compliments –> cornflakes and milk
-Change in consumer incomes –> Normal goods vs inferior goods
-Fashions, taste, and preferences–> snoods, increase in demand for bike due to triathlons.
-advertising and branding
-Demographics
-External Shock –> competition, government - taxes and laws, Economic climate
-Seasonality –>the seasons have an impact on what we buy as does calendar events

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3
Q

How do different demographics affect demand?

A

-Age–> distributions - centennials
-Gender –> Slightly more women than men
-Geographical –> more urbanisation, greater demand or school, hospital
-Other group –> single parent families, ethnic groups more demand for products associated with their culture immigration - polish products

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4
Q

What is Supply?

A

the amount of a product which suppliers will offer to the market at a given price
- the higher the price, the more will be offered in the market

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5
Q

What is fixed supply?

A

this is when there is a limit to supply, so price is irrelevant e.g. the number of swats in a cinema, tickets at the Wolves Civic

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6
Q

What factors lead to a change in supply?

A
  • changes in the cost of production - raw materials, energy wages, rent machinery
  • the availability of resources –> a lack of resources can reduce supply
    -Introduction of new technology
  • Indirect taxes –> e.g. VAT and excise taxes
    -Government subsidies –> grants to reduce costs, farming and renewable power sources
    -external shocks
    -Bank of England –> interest rates
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7
Q

How do External shock affect supply?

A
  • World events –> wars, financial crisis
  • Weather –> impact on agriculture but also distributing good
    -Government –> Bank of England increasing interest rates, increases costs of loan repayments, legislation can make markets less competitive
    -Price of relate goods –>if similar goods are going up in price businesses might change to supply more of that product and reduce supply of its current product e.g. carrot and potatoes
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8
Q

How does the Bank of England affect supply?

A

-High interest rates –> good for savers, bad for loan repayments
-Low interest rates –> Bad for savers, good for loan repayers
-Low interest rates –> to increase consumer spending

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9
Q

What is Excess demand?

A

the position where demand is greater than supply and there are shortages inthe market

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10
Q

What is Excess Supply?

A

the position where supply is greater than demand and there are unsold gods in the market

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11
Q

What happens to price when demand falls?

A
  • the business have to lower the price
  • if they dont lower it they coud be too much insold stock
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12
Q

What happens to price when supply goes up?

A
  • prices go down as they is too much supply
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13
Q

What is equilibrium?

A

also known as market clearing price where the amount supplied is completely brought by consumers

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14
Q

What is disequilibrium?

A

where the price in the market is not set at the point where supply and demand are equal

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15
Q

What is PED?

A

-Price Elasticity of Demand
- How responsive a products demand i to a change in the price
-understanding PED helps you set the right pricing

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16
Q

What is a Price Elastic product?

A
  • there is more response to a change in price
    -result is greater than 1
  • if price fall more people will buy but if price rises demand will fall rapidly
17
Q

What is a Price Inelastic product?

A
  • there is little response to a change in price
    -result is less than 1
  • if price decrease revenue decreases, but if price increases revenue increases
18
Q

How do you Calculate Price Elasticity of Demand?

A

-Percentage change in quantity demanded/ Percentage change in price

19
Q

What factors that influencing PED?

A

The main impact is how easy is it to get substitutes so impact include:
- Time –> long term people can afford to switch e.g. more efficient cars if petrol prices go up
-Competition for same product –> highly elastic and products which are easily substitutes by competitors e.g. potatoes
-Branding –> the stronger the brand, the more inelastic
- product types vs. the product of an individual business, petrol industry vs. individual companies like shell have more elasticity

20
Q

What is YED?

A

-Income Elasticity of Demand
- how responsive is demand to a change in income

21
Q

What is a Income Elastic product?

A

-greater than 1
-if income increases and demand increases more than it is income elastic
-holidays, entertainment –> Luxury goods and discretionary expenditure

22
Q

What is a Income Inelastic product?

A

-less than 1
- if income increases and demand increases a smaller amount it is income inelastic
- essential goods such as milk, food and heating fuel

23
Q

Why do you pay attention to the negative sign in the YED value?

A
  • tells you whether it is a normal good or inferior good
  • where there is a decrease in demand there is a negative result for inferior goods
24
Q

What is the YED formula?

A

Percentage change in quantity demanded/ percentage change in income

25
Q

What happens to inelastic products when income increases?

A
  • normal –> demand increases
    -Inferior –> demand decreases
26
Q

What happens to elastic products when income increases?

A
  • normal –> demand increases
  • inferior –>demand decreases
27
Q

What factors affect YED?

A

it depends on the type of goods it is
- Necessities –> income inelastic, water, electrics and arguably cigarettes
-Luxuries –> things you buy if you can afford them
-Discretionary Expenditure –> non-essential spending or spending that is not automatic
-Price –> low priced products often inelastic

28
Q

What is Discretionary Expenditure?

A

-non-essential spending or spending that is not automatic

29
Q

What is the significance of income elasticity of demand to businesses?

A

-businesses selling goods with high income elasticity - closely linked to economic cycle
- Businesses selling goods with low income elasticity –> stable, good for planning, maybe diversity
-Production planning -cut production in recession, car manufacturing
-Product switching - switch to more elastic product during growth