1.2 - The market Flashcards
(16 cards)
Define demand
The amount of a product that consumers are willing and able to purchase at a given point in time.
DIE CASTS
Give the factors affecting demand
Factors affecting Demand (DIE CASTS)
- Demographics (changes in)
- Incomes of consumers
- External shocks
- Complementary goods (price of)
- Advertising and branding
- Substitutes (price of)
- Tastes, fashions and preferences
- Seasonality
Define supply
The amount of a product that suppliers will offer to the market at a given price.
Give the factors that shift supply supply
Factors affecting Supply (SITEC)
* Subsidies (from government)
* Indirect taxes
* Technology (introduction of new tech)
* External shocks (weather, interest rates, exchange rates)
* Costs of production
Factors of production also shift supply
- Land – availability of raw materials
- Labour - e.g. migration, minimum wage
- Capital – capital employed, non-current assets e.g. machinery used in production
- Enterprise – new ideas, innovation, level of confidence
Define Indirect taxes
A tax levied on goods or services as opposed to income or profit e.g. VAT, landfill tax, import duties
What term describes a scenario where the price in a particular market is not set at the point where supply equals demand
Disequilbrium
There can be excess supply or demand
What 2 terms can be used to describe the state where supply = demand?
Equilibrium price or market clearing price
Define PED
The responsiveness of demand to a change in price
Give the factors affecting PED
Factors Affecting PED (PAT BIN)
* Price of competitor goods
* Availability of substitutes
* Time
* Branding
* Incomes of consumers
* Nature of good/service
What is inelastic and elastic PED?
Which PED values are elastic and inelastic?
Elastic:
Change in Q is greater than (>) change in P
Greater than 1 (ignoring minus)
Inelastic:
Change in Q is less than (>) change in P
Less than 1 (ignoring minus)
Describe an inferior good
- An inferior good is one whose demand drops when people’s incomes rise (e.g. Aldi baked beans)
- Inferior good = negative YED
- Refers to YED only
Define a normal good
- Normal good = positive YED
- As incomes rise, demand increases to a lower extent
- 0-1 YED value
Give factors effecting YED
- Necessity
- Luxury – purchasing of luxury goods is discretionary (not essential).
- Price of product – demand for low cost items like pencils likely inelastic. Demand for houses likely elastic
Give reasons why YED is useful for a business
- Predict demand to plan production
- Adapt product portfolio based on likely demand e.g. adjust balance of inferior, luxury, normal goods.
Define a luxury good (in context of YED)
A good in which there is a bigger percentage rise in demand when incomes increase
Value greater (>) than 1
Give the numerical values for inferior, normal and luxury goods (YED)
- Inferior: less than(<) 0 (Negative)
- Normal: 0-1
- Luxury: >1
Refers only to YED
