1.2 Flashcards
Define demand.
The amount of a good that consumers are willing and able to buy at a given price.
Price factors for demand?
Price, including
-Income effect
-Substitution effect
-Psychological effect
Non-price factors for demand?
-Price of competing goods
-Changes in consumer income
-Fashion + Trends
-Price of compliments
-Marketing + Advertising
-Population + Demographics
-Seasonal factors
-External shocks
Define supply.
The quantity of a good or service that a producer is willing and able to make available on the market, at a given price, over a given period of time.
Price’s impact on supply?
Price and supply are related - As a price paid by customers increases on a product or service, normally, a business will want to supply more, in anticipation of higher profits
Non-price factors of supply?
-Changes in cost of production
-Introduction of new technology
-Indirect taxes
-Government subsidies
-External shocks
Define Revenue
Money made from sales (price x quantity)
Define profit
Money made after costs have been deducted (e.g tax, production - (revenue - total costs)
Define Economies of scale
Economies of scale are cost advantages companies experience when production becomes efficient, as costs can be spread over a larger amount of goods. (thus benefiting from a wider profit margin)
Define Equilibrium price
The point at which supply and demand are equal in terms of price and quantity
What is the equation for percentage change?
difference/original x 100
What is the equation for price elasticity of demand (PED)
%change in quantity / %change in price
Define elastic demand
Demand for the product is sensitive to a change in price (value will be more than 1)
Define inelastic demand
Very little change in demand with a change in price (values will be between 0 and 1)
What are determinants of PED?
> the degree of product differentiation
the availability of substitutes
branding and brand loyalty
external shocks
seasonal changes
price of substitutes
