1.3 Introducing the market

Question 1

Define demand

Answer 1

The amount of a good or service that consumers are willing to purchase at a given price

Question 2

Name 5 factors that influence demand

Answer 2

Substitutes
Income
Taste / fashion
Interest Rates
External Shocks

Question 3

How do substitutes influence demand?

Answer 3

People will buy cheaper alternatives if they’re available

Question 4

How do interest rates influence demand?

Answer 4

Interest rates affect spending

Interest rate high = less borrowing = less spending

Question 5

Define supply

Answer 5

The amount of a good or service that firms are willing and able to supply at a given price

Question 6

Give 6 factors that influence supply

Answer 6

Operating costs
Changes in technology
Government taxes
Government subsidies
Number of producers in a market
External shocks

Question 7

How can changes in technology influence supply?

Answer 7

New technology can make production more efficient and thus increase ouput

Question 8

How do taxes influence supply?

Answer 8

They increase the cost of production and reduce output

Question 9

How do subsidies influence supply?

Answer 9

They decrease the cost of production and increase output

Question 10

How do the number of producers in a market influence supply?

Answer 10

The more companies producing a product, the higher its supply

Question 11

Define excess demand

Answer 11

When the price is below the free market equilibrium and demand is above the supplied amount

Question 12

Define Excess supply

Answer 12

When the price is above free market equilibrium and there is less demand for the product than is supplied

Question 13

Define market clearing

Answer 13

Market forces eliminate an excess through market clearing which forces the price to return to the equilibrium

Question 14

Define price mechanism

Answer 14

The way in which price responds to changes in supply and demand so that a new equilibrium is reached

Question 15

Names the 3 parts of the price mechanism

Answer 15

Rationing
Signalling
Incentive

Question 16

Explain how rationing works in the price mechanism

Answer 16

Resources are finite so not everyone can have everything they want so prices are bid up and so only those that can afford it can have it

Question 17

Explain how signalling works in the price mechanism

Answer 17

Prices determine where and how resources should be allocated. If prices increase, it signals that demand is high

Question 18

Explain how incentives work in the price mechanism

Answer 18

High prices attract producers to the market

Question 19

Define mass market

Answer 19

A largely consumed good that’s bought and sold between vast amounts of people

Question 20

Define niche market

Answer 20

A good targeted at a small group of people with specialised requirements that has low demand

Question 21

Define market research

Answer 21

The way in which a business does research to find gaps in the market

Question 22

Define primary research

Answer 22

Research carried out yourself

Question 23

Define secondary research

Answer 23

Research collected by someone else

Question 24

Define qualitative data

Answer 24

Using people’s opinions

Question 25

Define quantatitive data

Answer 25

Using numbers and figures

Question 26

Give 3 advantages of market research

Answer 26

Give a better view of the market
Allows you to look at opponents
Saves costs in the long run

Question 27

Give 3 disadvantages of market research

Answer 27

Expensive, lowering profit margins
Time consuming
May not be reliable or accurate

Question 28

Define market segmentagtion

Answer 28

Slitting the market up into identifiable groups of consumers that share a charateristic

Question 29

Give 6 catagories of market segmentation

Answer 29

Demographic
Geographical location
Behaviour (e.g. brand loyalty)
Psychological (e.g. lifestyle)
Income
Religion

Question 30

What is a market map?

Answer 30

A diagram that shows 2 different aspects of brands within a market

Question 31

Define market comparison

Answer 31

The way in which a product is viewed in relation to other products

Question 32

Give 2 advantages of market mapping

Answer 32

Show gaps in the market

Allows firms to see if their product would be profitable before putting it on the market

Question 33

Draw an example of a market map

Answer 33

(See 1.3 sheet)

Question 34

Define competitive advantage

Answer 34

They way that a business can make its product appear superior to competition

Question 35

In which 4 ways can a product gain a competitive advantage?

Answer 35

First movers advantage
Cost
Product differentiation
Branding

Question 36

How does cost-plus pricing work?

Answer 36

Money is added on top of the costs of production

Question 37

How does competitive pricing work?

Answer 37

Products are priced in line with competitors

Question 38

How does price skimming work?

Answer 38

Products are priced highly

Question 39

How does penetration pricing work?

Answer 39

Prices are set low and raised later on

Question 40

How does predatory pricing work?

Answer 40

Prices are lowered to price competitors out of the market

Question 41

How does psychological pricing work?

Answer 41

Products are prices highly to give the impression of luxury or products are priced at £n.99 to appear cheaper

Question 42

Give 5 things that influence the pricing strategy a firm uses

Answer 42

Number of USPs
Level of competition
PED
Demand
Cost and the need to make profit

Question 43

Define stable market

Answer 43

A market where the pace of change is very slow and market share is consistent

Question 44

Define dynamic market

Answer 44

A market that is constantly moving and changing