1.2 Market Flashcards
What is demand?
Demand is the number of goods/services customers are willing to buy at a given price
What are the factors leading to a change in demand?
- Price of substitutes
- Advertising and branding
- Changes to income
- Changing demographics
- External shocks
- Seasonality
- Changes in fashion and tastes
What are the non price factors affecting demand?
- Changes in the price of substitutes
- Changes in the price of complements
- Changes in consumer incomes
- Fashion tastes and preferences
- Advertising and branding
- Demographics
- Seasonality
- External shocks
What is supply?
Supply is the number of goods/services businesses are willing to sell at a given price in a specific time period
What are the factors leading to a change in supply?
- Changes in cost of production
- New technology
- Indirect taxes
- Government subsidies
- External shocks
What are the non price factors affecting supply?
- Changes in the costs of production
- New technology
- Indirect taxes
- Government subsidies
- External shocks
What’s the formula for PED?
% change in QD / % change in price
What is PED?
The responsiveness of quantity demanded following a change in price
What does a PED > 1 mean?
The good is elastic
What does a PED between 0 and 1 mean?
The good is inelastic
What are the factors influencing PED?
- Availability of substitutes
- Proportion of income spent
- Luxury or necessity
- Time
- Brand loyalty
What is YED?
The responsiveness in a change in quantity demanded following a change in income
What is the formula for YED?
% change in QD / % change in income
What does a YED > 1 mean?
The good is a luxury good
What does a YED between 0 and 1mean?
The good is a necessity
