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Business Theme 1 > The Market 1.2 > Flashcards

The Market 1.2 Flashcards

(49 cards)

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1
Q

What is demand?

A

Number of goods customers are willing to buy at a given price

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2
Q

What is effective demand?

A

Customers are willing and able to buy at a given price

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3
Q

What is the basic ‘law’ of demand?

A

Inverse relationship between the quantity demanded by customers and price

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4
Q

What is a demand curve?

A

Graphic representation showing the relationship between price of a product & quality of it that consumers are willing and able to buy at different prices

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5
Q

List non-price factors that affect demand

A
  1. Change in price of substitute
  2. Change in price complement
  3. Change in consumer income
  4. Fashion, tastes, preferences
  5. Advertising + branding
  6. Demographics
  7. Seasonality
  8. External shock
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6
Q

What are substitutes?

A

Replacement good that perform the same job

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7
Q

What are complementary goods?

A

Product/ service that adds value to another (goods consumed together)

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8
Q

What are normal goods?

A

Goods for which demand increases as consumers income rises

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9
Q

What are luxury goods?

A

Goods for which demand increases more that proportionally as income rises
- High quality
- Exclusivity
- High price tag

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10
Q

What are inferior goods?

A

Goods for which demand falls as customers income rises

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11
Q

What are seasonal variations?

A

Fluctuations in demand/ sales that occur at regular + predictable times of the year

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12
Q

What is supply?

A

Quantity of a good/ service that a producer is willing and able to supply onto the market at a given price

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13
Q

What is the basic law of supply?

A

Selling price of a product rises, so businesses expand supply to the market

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14
Q

What is a supply curve?

A

A line that shows the different combinations of quality supplied & market price

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15
Q

Why is there a direct relationship between supply and price?

A
  • As price increases, supply increases
  • As price decreases, supply decreases
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16
Q

What are the 4 causes of change in market supply?

A
  1. Cost of production
  2. External shocks
  3. New tech
  4. Taxation/ subsidies
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17
Q

Why does the cost of production lead to a change in market supply?

A
  • Lower unit cost= supply more at each price
  • Higher unit cost= inward shift of supply
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18
Q

Why does external shocks lead to a change in market supply?

A
  • Unexpected changes in the external business env. impacts supply
    E.g. Tectonics damaging factories
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19
Q

Why does new tech lead to a change in market supply?

A
  • Tech change encourage new entrants to market (existing suppliers become more efficient)
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20
Q

Why does taxation/ subsidies lead to a change in market supply?

Study These Flashcards
A
  • Higher tax= people don’t want to sell as much
  • Subsidies= increase in supply to market
21
Q

What is a subsidy?

Study These Flashcards
A

Any form of gov. support offered to producers

22
Q

When is a market said to be in equilibrium?

Study These Flashcards
A

When there’s a balance between demand and supply

23
Q

What happens to market equilibrium when demand increases?

Study These Flashcards
A

An outward shift of market demand leads to rise in equilibrium price and expansion of market supply

24
Q

What happens to market equilibrium when supply increases?

Study These Flashcards
A

An outward shift of market supply leads to fall in equilibrium price and expansion of market demand

25
What is market demand?
Total quantity demanded for a product in a market by all consumers
26
What is market supply?
Total quantity of product supplied to a market by suppliers
27
What is a commodity market?
Market place where raw materials/ primary products are traded
28
What does elasticity measure?
The responsiveness of demand to a change in a relevant variable
29
What does elastic mean?
Change in price quickly results in a change in quantity demanded
30
What does inelastic mean?
Price changes have minimal impact on the quantity consumers purchase
31
What does price elasticity of demand measure (PED)?
The extent to which the quantity of a product demanded if affected by change in price
32
PED calculation
% change in quantity demanded/ % change in price
33
Price elastic=
PED value= more than 1 Change in demand is more than change in price
34
Price inelastic=
PED value= less than 1 Change in demand is less than change in price
35
Unitary price elasticity=
PED value= exactly 1 Change in demand= change in price
36
Why does PED matter?
If PED >1 then change in price will cause larger change in demand - Overall rev. increase with price cut - Overall rev. fall with price increase (OPPOSITE IS PED <1= PRICE INELASTIC)
37
What factors influence the PED of a product?
1.Brand strength 2. Necessity 3. Habit 4. Availability of substitutes 5. Time
38
How does brand strength effect PED?
Products with strong brand loyalty + reputation tend to be price inelastic
39
How do necessity products effect PED?
The more necessary a product, the more demand tends to be inelastic
40
How does habits from consumers effect PED?
Products that are demanded + consumed as a matter of habit tend to be price inelastic
41
How does the availability of substitutes effect PED?
Demand for products that have lots of alternatives tend to be price elastic
42
How does time effect PED?
In short-run, changes tend to have less impact on demand than over longer periods
43
What does income elasticity of demand measure (YED)?
The extent to which the quantity of a product demanded is affected by a change in income
44
YED calculation
% change in quantity demanded/ % change in income
45
What happens to the demand of normal goods as income changes?
Rise income= rise demand Fall income= fall demand
46
YED for luxuries=
- YED= more than 1 - Income grows= proportionally more spent on luxuries
47
YED for necessities=
- YED= less than 1, more than 0 - Income grows= proportionally less spent on necessities
48
Why do we need to watch out for inferior goods YED?
Have negative income elasticity of demand - Can be inelastic or elastic - Income rise= demand fall
49
What are some limitations of using elasticities?
1. Difficult to get reliable data on how demand change in relation to price 2. Other factors affect demand 3. Markets subject to rapid technological change 4. Competitors react

Business Theme 1 (5 decks)

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