1.2 Flashcards
Demand
Demand for a good or service is the quantity that customers are willing and able to buy at a given price in a given period of time.
lower prices make products more affordable for consumers, decrease in demand left, increase for right
factors leading to change: changes in prices of substitutes /complementary goods
changes in consumer incomes
fashion tastes preferences, so decrease in popularity especially in a dynamic market so can experience sharp fluctuations
advertisig and branding
external shocks, arrival of competition, government legislation, env factors
Demand curves
Demand curve rules
Supply
Supply curve
Factors affecting supply
changes in cost production, wages, raw materials, machinery
introduction to new machinery
government subsides
indirect taxes
Supply curve shifts
Market
Interaction of supply and demand graph
PED
Price elasticity measures the extent to which demand for a product changes when its price is changed.
Interpreting PED
Factors influencing PED
How to reduce PEDA
Increasing Product Differentiation
Product differentiation is the degree to which consumers perceive that a product is different (and preferably better) than its rivals.
eliminate competition. predatory pricing: a deliberate attempt to force a competitor out of a market by charging a low, loss-making price. The reduction in the number of substitutes available allows the predator to raise its prices. If there are no cheaper substitutes available, the customer is forced to pay the higher prices or go without. The same effect can be achieved by takeover bids
YED
Income elasticity measures the extent to which demand for a product changes when there is a change in consumers’ real incomes.
Income elastic demand and income inelastic demand
Factors affecting YED
YED equation
PED equation
