Booklet 5: Markets and Market Forces

Question 1

What is a market?

Answer 1

A market is essentially an environment where buyers and sellers exist to exchange goods and services.

Question 2

What is a Consumer goods and services market?

Answer 2

A consumer market is one in which a business is selling its products to the general public, (e.g. vehicles, confectionery.)

Question 3

What is a Capital good market?

Answer 3

A capital goods market is one in which tangible products are sold from one business to another business, which in turn uses the products to produce consumer goods (e.g. Equipment is sold to a construction company).

Question 4

What is a labour market?

Answer 4

The labour market is characterised by the availability of job opportunites and workers.

Question 5

What is a Mass Market?

Answer 5

A mass market is a large market where consumer wants and needs are not specific.

Question 6

Advantages of Mass Marketing?

Answer 6

1. The product appeals to the mass market (this should improve profit margins).
2. More customers mean more revenue.
3. A mass-market product can be advertised and marked more effectively.

Question 7

Disadvantages of Mass Marketing?

Answer 7

1. High fixed capital costs are incurred.
2. It can be difficult to appeal directly to each individual customer because mass-market products are designed to suit all customers.

Question 8

What is a Niche Market?

Answer 8

A Niche Market represents a small segment of the larger market on which a product or service is focused.

Question 9

Advantages of a niche market?

Answer 9

1. Fewer competitors- allows firms to charge higher prices.
2. Lack of economies of scale allows small firms to compete more effectively.
3. Limited demand suits a small firm.

Question 10

Disadvantages of a niche market?

Answer 10

1. Limits the amount of profit.- Fewer customers= less profit.
2. Carry more risk- specialise in a certain area wiht nothing to fall back on.
3. An increase in interest may be enough to attract larger firms into the market.

Question 11

What is Market size?

Answer 11

Market size- calculated by adding together all sales reported by firms within a marketplace.

Question 12

What is Market share?

Answer 12

Market share- represents the proportion of sales a business or product line has achieved (as a %).

Question 13

What is Market Location?

Answer 13

Location- represents the geographical territory in which the business trades.

Question 14

What is the Differentiation of products?

Answer 14

Differentation of products- the process a business undertakes to ensure that their product/ service is sufficiently diffirent from other products/ services in order to make it more appealing to customers in a specific target market.

Question 15

What is the definition of Demand?

Answer 15

Demand- describes a consumer’s desire and willingness to pay a price for a specific good or service.

Question 16

What is the definition of Supply?

Answer 16

Supply- As the quantity of a good or service that producers are willing and able to supply onto a market at a given price in a given time period.

Question 17

How does Price influence Demand?

Answer 17

1. Change in the price of substitute goods or services.

2. Change in the price of complementary goods or services.

Question 18

How does Changing consumer income influence Demand?

Answer 18

When disposable income rises, customers purchase more causing demand to increase.

Question 19

How do changing consumer tastes and fashions influence Demand?

Answer 19

Product or service is more favourable to consumer tastes or it has become more fashionable then the demand curve will shift to the right.

Question 20

How does Advertising influence Demand?

Answer 20

Advertising may cause the demand curve to shift to the right meaning demand increases.

Question 21

How do Changing Populations influence Demand?

Answer 21

If the population aged over 70 grows, then the demand for elderly products increases.

Question 22

How does Seasonality influence Demand?

Answer 22

Demand for winter clothing/ coats will increase in the winter season and decrease in summer.

Question 23

How does Government Legalisation influence Demand?

Answer 23

Increasing duty on cigarettes, can increase their price and therefore reduce demand.

Question 24

How does New technology influence Demand?

Answer 24

When new technology is introduced into a business process the product can be produced at a lower cost, which leads to an increase in the quantity supplied.

Question 25

How does Changes in the Cost of Production influence Demand?

Answer 25

When the costs of raw materials increase, overall costs rise, therefore the supply curve shifts left and the quantity supplied falls.

Question 26

How does Indirect Taxes influence Demand?

Answer 26

When indirect tax decreases (e.g. VAT), the business will want to increase the supply of the product or service. The supply curve shifts to the right.

Question 27

How do Government subsidies influence Demand?

Answer 27

Funds provided by government to a business. Typically used to subsidise to reduce costs of production. This increases supply.

Question 28

How do External shocks influence Demand?

Answer 28

Unfavourable weather conditions or natural events, e.g. flooding resulting in the destruction of crops.