1.3 Introducing the market Flashcards Preview

EDEXCEL Economics B Paper 1 > 1.3 Introducing the market > Flashcards

Flashcards in 1.3 Introducing the market Deck (44)
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1
Q

Define demand

A

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

2
Q

Name 5 factors that influence demand

A
Substitutes
Income
Taste / fashion
Interest Rates
External Shocks
3
Q

How do substitutes influence demand?

A

People will buy cheaper alternatives if they’re available

4
Q

How do interest rates influence demand?

A

Interest rates affect spending

Interest rate high = less borrowing = less spending

5
Q

Define supply

A

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

6
Q

Give 6 factors that influence supply

A
Operating costs
Changes in technology
Government taxes
Government subsidies
Number of producers in a market
External shocks
7
Q

How can changes in technology influence supply?

A

New technology can make production more efficient and thus increase ouput

8
Q

How do taxes influence supply?

A

They increase the cost of production and reduce output

9
Q

How do subsidies influence supply?

A

They decrease the cost of production and increase output

10
Q

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

A

The more companies producing a product, the higher its supply

11
Q

Define excess demand

A

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

12
Q

Define Excess supply

A

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

13
Q

Define market clearing

A

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

14
Q

Define price mechanism

A

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

15
Q

Names the 3 parts of the price mechanism

A

Rationing
Signalling
Incentive

16
Q

Explain how rationing works in the price mechanism

A

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

17
Q

Explain how signalling works in the price mechanism

A

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

18
Q

Explain how incentives work in the price mechanism

A

High prices attract producers to the market

19
Q

Define mass market

A

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

20
Q

Define niche market

A

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

21
Q

Define market research

A

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

22
Q

Define primary research

A

Research carried out yourself

23
Q

Define secondary research

A

Research collected by someone else

24
Q

Define qualitative data

A

Using people’s opinions

25
Q

Define quantatitive data

A

Using numbers and figures

26
Q

Give 3 advantages of market research

A

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

27
Q

Give 3 disadvantages of market research

A

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

28
Q

Define market segmentagtion

A

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

29
Q

Give 6 catagories of market segmentation

A
Demographic
Geographical location
Behaviour (e.g. brand loyalty)
Psychological (e.g. lifestyle)
Income
Religion
30
Q

What is a market map?

A

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

31
Q

Define market comparison

A

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

32
Q

Give 2 advantages of market mapping

A

Show gaps in the market

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

33
Q

Draw an example of a market map

A

(See 1.3 sheet)

34
Q

Define competitive advantage

A

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

35
Q

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

A

First movers advantage
Cost
Product differentiation
Branding

36
Q

How does cost-plus pricing work?

A

Money is added on top of the costs of production

37
Q

How does competitive pricing work?

A

Products are priced in line with competitors

38
Q

How does price skimming work?

A

Products are priced highly

39
Q

How does penetration pricing work?

A

Prices are set low and raised later on

40
Q

How does predatory pricing work?

A

Prices are lowered to price competitors out of the market

41
Q

How does psychological pricing work?

A

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

42
Q

Give 5 things that influence the pricing strategy a firm uses

A
Number of USPs
Level of competition
PED
Demand
Cost and the need to make profit
43
Q

Define stable market

A

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

44
Q

Define dynamic market

A

A market that is constantly moving and changing