1.2 - The Market Flashcards
(25 cards)
Define demand
Demand for a product is the quantity of a product that a customer is willing and able to buy at a given price
What are substitute products
Similar products which customers may buy as an alternative
What are complementary products
They are in joint demand with the product. High demand for one means high demand for the other.
Movement along the demand curve is caused by …
A change in price.
A shift of the demand curve is caused by …
Other non price factors, such as:
- change in customer income
- changes in price of competitors
- level of advertising
- external shocks
The gradient for a demand curve is
Negative
Define Supply
The quantity of goods or services that firms are willing and able to sell at a given price
(Supply) At higher prices, firms will
Increase their output because it will lead to higher profits
A movement along the supply curve is caused by
A change in price.
A shift in the supply curve is caused by
Any non price factor e.g. New tech, production costs, changed in indirect tax, government subsidies
What is the equilibrium price
Where the supply and demand curves intersect
What is a shortage
A situation where there is more quantity demanded than the quantity supplied at a fixed price. Sellers see this as an opportunity to raise prices to reach the equilibrium price level
What is a surplus
This is a situation where there is more quantity supplied than the quantity demanded at a fixed price. Sellers will have to lower their prices to be able to sell their products they have
What is price elasticity
The extent to which changes in price affect demand ( how responsive demand is to a change in price )
Price Elasticity of Demand =
%Change in QD ➗% Change in Price
If the PED is between 0-1
It is inelastic demand, the gradient is steep
If the PED is between 1-infinite
Elastic demand, the gradient is flat
What is revenue
The income received by a business from selling goods and services over a period of time.
= Price X quantity
Factors affecting PED
- Number of substitutes available
- the strength of the brand
- the level of necessity or addiction
- proportion of income spent on a product
What is income elasticity
It measures the responsiveness of quantity demanded to changes in real income
YED=
%change in quantity demanded ➗ %change in income
Real disposable income :
The income of households after taxes and benefits.
What are normal goods
They have a positive but low YED, between 0 and 1, these are said to be income inelastic
What are luxury goods
Have a much stronger PED, greater than 1, these are said to be income elastic
