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A Level Business > 1.2 Market > Flashcards

1.2 Market Flashcards

1
Q

What is meant by demand?

A

Demand is the amount of goods and services a consumer is willing and able to purchase at a given price and in a given time period.

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2
Q

What is meant by effective demand?

A

This is demand that is backed up by an readiness to pay.

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3
Q

What factors affect demand?

A

Price
Price of substitutes
Price of complementary goods
Advertising and branding
Consumer incomes
Fashions, tastes and preferences
Demographics/population
external shocks

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4
Q

What is meant by a complementary good?

A

When two goods are generally purchased together. E.g. Petrol and Petrol car.

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5
Q

What is meant by a substitute good?

A

When one product can be bought instead of another e.g., cornflakes and Frosties.

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6
Q

What is meant by supply?

A

Supply is the amount of goods and services a supplier is willing and able to produce at a given price in a given time period.

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7
Q

What factors affect supply?

A

Changes to costs of production
Introduction of new technology
Subsidies
Indirect taxes
Number of firms in the market
External shocks

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8
Q

Why is the demand curve downward sloping?

A

There is an inverse relationship between price and quantity demanded.

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9
Q

Why is the supply curve upward sloping?

A

There is a positive relationship between price and quantity supplied. At a higher price there is more profit incentive for the firm to produce more.

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10
Q

What is meant by the market equilibrium price?

A

This is where demand and supply meet.

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11
Q

What is meant by a surplus in the market?

A

Where supply exceeds demand, usually because the price is too high.

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12
Q

What is meant by a shortage in the market?

A

Where demand exceeds supply, usually because of low prices.

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13
Q

Which way will demand shift, if there is an increase in demand?

A

Right

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14
Q

Which way will demand shift, if there is a decrease in demand?

A

Left

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15
Q

Which way will supply shift if there is an increase in supply?

A

Right

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16
Q

Which way will supply shift if there is a decrease in supply?

A

Left

17
Q

What is meant by Price Elasticity of Demand (PED)?

A

The responsiveness of demand to a change in price.

18
Q

How do you calculate PED?

A

Percentage change in quantity demanded/percentage change in price.

19
Q

Why is PED Always negative?

A

There is an inverse relationship between price and quantity demanded.

20
Q

What factors affect the PED?

A

Number of substitutes
Necessity or luxury
Addictiveness/habitual behavior
Frequency of purchase
Time
Percentage of income

21
Q

If PED is below 1, what does this mean?

A

PED = Inelastic

22
Q

If PED is above 1, what does this mean?

A

PED=Elastic

23
Q

What is meant by inelastic PED?

A

It means that demand is not very responsive to a change in price.

24
Q

What is meant by elastic PED?

A

Demand is very responsive to a change in price.

25
Q

If PED is elastic, how will the pricing strategy of the firm change?

A

More likely to charge a lower price
-competitive pricing or penetration pricing

26
Q

If PED is inelastic, how will the pricing strategy of the firm change?

A

More likely to charge a higher price
-price skimming
-cost plus pricing with large mark up.

27
Q

What happens to revenue if PED is inelastic and the price rises?

A

A rise in revenue

28
Q

What happens to revenue if PED is elastic and price rises?

A

A fall in revenue

29
Q

What is meant by income elasticity of demand?

A

The responsiveness of demand to a change in income.

30
Q

How do you calculate YED?

A

Percentage change in quantity demanded/ percentage change in income.

31
Q

What factors influence the YED?

A

Luxury or necessity
Expectations of changing income e.g. loss of job, economic influences

32
Q

If the YED is negative, what type of good will this be?

A

Inferior good

33
Q

If the YED is positive, what type of good will this be?

A

Normal good

34
Q

What is meant by an inferior good?

A

A good where as income increases, demand decreases and vice versa

35
Q

What is meant by a normal good?

A

A good where as income increases, demand increases and vice versa.

A Level Business (4 decks)

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