(1.2) Market Flashcards
What is demand?
What customers are able and willing to buy at a given price
What is supply?
What firms are willing to produce at a given time
What are the 7 factors that lead to a change in demand?
Substitutes - Eg buying Pepsi over coca cola
Complementary - Eg Buying milk with cereal
Consumer income - Inferior / normal goods
Preferences - Changes in consumer tastes
Advertising & Branding -
Demographic -
External stocks -
Seasonality - Eg garden furniture demand rises during spring
What are inferior and normal goods with examples?
Normal goods - Increased income leading to an increase in demand
Eg cars, clothing , luxury goods
Inferior goods - Increase in income leading to an decrease in demand
Eg public transport, Tesco deals
What are the 7 factors that lead to a change in supply?
Cost of production - Eg wages, maintenance, raw materials, energy, rent
Introduction of new technology - help lower costs
Indirect taxes - Eg VAT
Government subsidies - Money given to a firm from the gov
External stocks - Factors beyond the control of the business eg weather
Price of related goods - The price of the good could encouraged supply
What is Price Elasticity of Demand (PED)?
It indicates to firms how much demand will change when the price changes
What is the equation of Price Elasticity of Demand (PED) and how do you know if PED is elastic or inelastic?
(% Change in Demand) / (% Change in Price)
PED < 1 = Inelastic
PED > 1 = Elastic
What is the equation of Income Elasticity of Demand (YED) and how do you know if YED is elastic or inelastic?
(% Change in Demand) / (% Change in Income)
PED <= 1 = Inelastic
PED >= 1 = Elastic
Negative = Normal Good Positive = Inferior Good
What factors effect the PED?
Time (Customers Substitute) -
Competition -
Branding -
What factors effect the YED?
- If the good is a necessity
- If its a luxury good
What is Income Elasticity of Demand (YED)?
It indicates to firms how much demand will change when income changes
What is equilibrium price?
When supply and demand are equal
What are firms likely going to do when the market price increases or decreases?
Increase - Firms will extend supply to the market
Decrease - Firms will contract their supply of a product
Which direction does a supply and demand cure face?
Demand slopes down and supply slopes up
