1.2 keywords Flashcards
demand
The amount of a good or service a consumer is willing and able to buy.
supply
The quantity of a good/service that a supplier is able deliver within a specific time period.
non price detriments of demand
Tastes and Preferences, Related Goods, Income, Population Size, External Shocks
normal good
Goods for which sales move in line with income e.g. as income rises, demand increases
luxury goods
Goods for which sales rise rapidly when people are better off but may fall rapidly in hard times.
inferior goods
Goods for which sales fall as income rises e.g. Tesco’s own baked beans.
demographics
Break down population data by age, ethnic origin or gender.
external shocks
Unexpected changes in the market e.g. typhoon ruins crops.
complimentary goods
Goods bought in conjunction with each other such as fish and chips.
substitute goods
Goods in competition with each other e.g. Pespi and Coke
seasonal variation
The change in the value of a variable that is related to seasons e.g. retail fashion stores, ice cream, Christmas trees.
supply chain
The whole path from suppliers of raw materials through production and storage on to customer delivery.
equilibrium
A state of rest in the market where supply meets demand.
market price
The price of a commodity that has been established by the market (e.g. supply and demand meet at equilibrium).
commodity market
The cover undifferentiated products such as rice, oil or gold - one kilo is the same as another.
price elasticity of demand
A measure of the responsiveness of quantity demanded to a change in price.
PED = % Change in Quantity Demanded / % Change in Price
Determinants of PED
HITS - Habit Forming, Proportion of Income, Time, Availability of Substitutes.
price elastic
A product with demand that is highly price sensitive so a PED of over 1, e.g. If price changes, demand changes more proportionally than the change in price.
price inelastic
A product with demand that is not very price sensitive so PED will be below 1. If prices are increased, customers remain loyal, e.g. tends to be where there is little competition or very strong brand names; necessities; commodities. If price changes, demand changes less proportionally than the change in price.
predatory pricing
Pricing low with a deliberate intention of driving a competitor out of business.
Income Elasticity of Demand (YED)
A measure of the responsiveness of quantity demanded to a change in income.
YED = % Change in Quantity Demanded / % Change in Income
Positive Income Elasticity of Demand
Positive Income Elasticity of Demand
Implies a normal good e.g. as income rises, demand increases.
Negative Income Elasticity of Demand
Implies an inferior good e.g. as income rises, demand decreases.
