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A-Level Business Theme 1 > 1.2 - Market > Flashcards

1.2 - Market Flashcards

1
Q

What is Demand?

A

Demand is the amount of a good that consumers are willing and able to buy at a given price.

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2
Q

What is the relationship between Price and Demand?

A

The higher the price, the lower the demand.

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3
Q

Which factors can influence demand?

A

o changes in the prices of substitutes and complementary goods
o changes in consumer incomes
o fashions, tastes and preferences
o advertising and branding
o demographics
o external shocks
o seasonality

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4
Q

How does the change in the price of substitutes and complementary goods lead to changes in demand?

A

If the price of a product’s substitutes or complementary goods increases, the demand for the product will decrease as it is less appealing to consumers.

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5
Q

How does the change in consumer income lead to changes in demand?

A

If income, demand will change depending on the type of product it is:
Inferior: If incomes increase, demand will fall as consumers can afford better products
Luxury: If incomes increase, demand will also increase as more people can afford to purchase the luxury
Normal: If incomes increase, demand will increase

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6
Q

How does the change in fashion, tastes, and preferences lead to changes in demand?

A

If consumer tastes change so that they like a product more, demand will increase, and vice versa.

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7
Q

How does the change in advertising and branding lead to changes in demand?

A

If a business advertises more/better, demand for their goods will increase, and vice versa.
However, if a competitor advertises more/better, demand for their products will fall as more people by the competitors.

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8
Q

How does the change in demographics lead to changes in demand?

A

Targeting certain market segments may increase demand if that segment, for example, has a high average income.

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9
Q

How do external shocks lead to changes in demand?

A

External factors such as a pandemic or a recession would lead to falling demand as consumers generally have less disposable income.

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10
Q

How does seasonality lead to changes in demand?

A

Seasonality will affect demand significantly for businesses which are season-related, such as a ski-resort or a Christmas Tree shop. For both of these examples, demand would fall drastically in the summer.

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11
Q

What does an inwards shift in the demand curve mean?

A

A decrease in demand.

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12
Q

What does an outwards shift in the demand curve mean?

A

An increase in demand.

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13
Q

What is the law of demand?

A

When the price increases, demand will decrease.
When the price decreases, demand will increase.

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14
Q

What is Supply?

A

The quantity of a good or service that a producer is willing to provide to the marketplace at different prices.

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15
Q

What is the relationship between Price and Supply?

A

The higher the price, the larger the quantity supplied, ceteris paribus.

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16
Q

What factors can influence supply?

A

o changes in the costs of production
o introduction of new technology
o indirect taxes
o government subsidies
o external shocks

17
Q

What does an inwards shift in the supply curve mean?

A

A decrease in supply.

18
Q

What does an outwards shift in the supply curve mean?

A

An increase in supply.

19
Q

How does a change in the cost of production change supply?

A

If the cost of production increases, supply will likely decrease.

20
Q

How does the introduction of new technology change supply?

A

If more efficient technology is introduced, supply will increase as it likely means production is quicker/more efficient.

21
Q

How do indirect taxes change supply?

A

Indirect taxes increase costs so supply will decrease (and price would likely increase).

22
Q

How do Government Subsidies lead to a change in supply?

A

A Subsidy would lead to a business having lower costs and so supply would increase as the business can afford to do so.

23
Q

How do External Shocks lead to a change in supply?

A

An Economic Boom, for example, would lead to more supply as the business keeps up with increasing demand.

24
Q

What is the significance of income elasticity of demand to businesses?

A
  • Retailers use YED to plan sales, e.g., will sell more own brands in a recession
  • As consumers’ incomes rise, businesses expect demand for normal goods to increase
  • Producing a few inferior goods may protect a business from recession
25
Q

What is the Market Equilibrium?

A

Equilibrium is the state in which supply and demand balance each other (where they meet on the curves), and as a result, prices become stable.

26
Q

How do you calculate the Price Elasticity of Demand (PED)?

A 
       % change in Price
27
Q

The interpretation of PED.

A

Perfectly Inelastic - 0
Relatively Inelastic - <1
Unit Elastic - 1
Relatively Elastic - >1
Perfectly Elastic - ∞

28
Q

What factors influence price elasticity?

A

Elastic if:
* It is a luxury good
* There are many close substitutes
* The cost of switching is low
* Consumers have a low income
Inelastic if:
* It is a necessity
* There are few or no substitutes
* Brand loyalty is strong
* The product is addictive (e.g., Cigarettes)

29
Q

How does Inelastic Demand affect Revenue?

A

With inelastic demand, revenue will be greater if the price increases - this is because consumers continue to buy the product.

30
Q

How does Elastic Demand affect Revenue?

A

With elastic demand, revenue will be greater if the price falls - this is because a lower price significantly increases quantity demanded.

31
Q

How do you calculate the Income Elasticity of Demand (YED)?

A

% change in Income

32
Q

The interpretation of YED.

A

Elastic - > 1, Luxury Goods as an increase in income will cause an increase in quantity demanded
Inelastic - < 1, Inferior Goods / Normal Goods as an increase in income will cause a decrease in quantity demanded

33
Q

What factors influence income elasticity?

A
  • Type of Product (luxury, Normal, Inferior)
  • Consumer Perceptions - Advertisement seen by consumers can encourage them to spend extra income on their products

A-Level Business Theme 1 (5 decks)

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