1.2 Market Flashcards
What is demand?
The level of interest customers have in a product
What does the amount of high demand depend on?
Price of the good
Income of consumers
Consumer tastes
Advertising/branding
Demographics
External shocks
Seasonality
What is a substitute good?
A similar, rival product that consumers may choose instead
What is a complementary good?
A product who use accompanies another e.g fish and chips
What is supply?
Amount of product/service that a business is willing to provide at a given price.
What factors can lead to a change in supply?
Changes in costs of production (if they rise, supply will fall and vice versa)
Introduction of new technology (increase)
Indirect taxes (increase will reduce supply and vice versa)
Government subsides (increase)
External shocks (decrease)
What is equilibrium?
When supply and demand are balanced, making the price stable
What happens to the supply/demand curve when they move to the left?
Supply - Price moves up
Demand - Price moves down
What happens to the supply/demand curve when it moves to the right?
Supply - Price moves down
Demand - Price moves up
What is price elasticity of demand?
The responsiveness of demand to a change in price
What is the formula of price elasticity of demand?
% change in demand
% change in price
What does it mean if price elasticity is between 0 and -1?
Product is price inelastic
Changes in price have a smaller effect on demand/sales
What does it mean if price elasticity is a negative number greater than 1?
Product is price elastic
Changes in price have a larger effect on demand/sales
What factors influence price elasticity?
Degree of product differentiation
Availability of direct substitutes
Branding/brand loyalty
What is the significance of price elasticity?
Can help in forecasting sales
Can help decide on the best pricing strategy for increasing revenue
