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BM Business theme 1 > 1.2 market > Flashcards

1.2 market Flashcards

1
Q

What is demand

A

The number of goods/services customers are willing to buy at a given price

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2
Q

What are 5 non price factors affecting demand

A

Price of other goods (compliments and substitutes)
Changes in tastes and fashion
Changing demographics
Advertising and branding
Changes to income

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3
Q

How does the price of compliments affect demand

A

Complimentary goods are consumed together. If one rises in price then the demand for the other one will decrease, as overall price increases. E.g. Printer and Ink

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4
Q

How does the price of substitutes affect demand

A

Substitute goods are replacement goods. Similar products sold by different businesses

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5
Q

How do changes in consumer incomes affect demand

A

As consumers income rises, demand for normal goods increase e.g. branded goods

If consumers income falls demand for inferior goods increase e.g. own label products

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6
Q

How do fashion tastes and preferences affect demand

A

If goods or services become more fashionable then demand for them increases.

And the opposite

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7
Q

How does advertising and branding affect demand

A

More money spent on advertising and branding = Increase in consumer awareness and brand loyalty

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8
Q

How does demographics affect demand

A

If the size or structure of a country’s population changes then demand for goods/services will too.

e.g. decrease in the number of babies born = decrease in demand for baby products

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9
Q

How can seasonality affect demand

A

Demand varies at different times of the year

for example during cold climates the demand for warm coats increases

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10
Q

How do external shocks affect demand

A

unexpected events can lead to a change in demand.

e.g. Outbreak of covid lead to increase in demand of toilet roll due to panic buying.

Increase in demand for face masks.,

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11
Q

Define supply

A

Supply is the number of goods/services businesses are willing to sell at a given price in a specific time period

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12
Q

What are 5 non price factors affecting supply

A

Changes in cost of production
New technology
External shocks
Indirect taxes
Government subsidies

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13
Q

How does changes in the costs of production affect supply

A

Increase in cost of production makes it more expensive to produce each unit of a good. This means that a business will be able to produce less at a given price

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14
Q

How does new technology affect supply

A

Advances in technology will lead to lower costs of production. This means business can produce more at a given price.

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15
Q

How do indirect taxes affect demand

A

If the government was to increase indirect taxes on businesses then the cost of production will increase as the firm has to pay extra costs.

This means the business can produce less at a given price

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16
Q

How do government subsidies affect demand

A

If a subsidy is given by the government to a business then it will reduce the costs of production

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17
Q

What is a subsidy

A

A subsidy is an amount of money paid to the firm by the government for each unit produced

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18
Q

How do external shocks affect supply

A

An unexpected event can affect supply

e.g. covid caused many hotels, bars and restaurants to close down. This decreases supply

19
Q

What is a market

A

A market is any place that brings buyers and sellers together to trade at an agreed price

20
Q

How is the market equilibrium met

A

Sellers will gradually adjust prices until their is a price and quantity that works for both parties

21
Q

What does PED measure

A

How responsive the change in quantity demanded is to a change in price

22
Q

What is the calculation for PED

A

%change in quantity demanded / % change in price

23
Q

how do you workout % change

A

(new -old) / old

24
Q

PED will always be negative. True or false

A

True

25
Q

What does a numerical value of >1 mean for PED

A

The good is elastic.

Demand is more responsive to a change in price

e.g. luxury goods

26
Q

What does a numerical value between 0 and 1 mean for PED

A

The good is inelastic

Demand is less responsive to a change in price

e.g. necessities and addictive products

27
Q

What are five factors that affect PED

A

Availability of substitutes
Brand Loyalty
Proportion of income spent
Luxury or necessity
Time

28
Q

How does brand loyalty affect PED

A

Consumers become loyal to the brand and will refuse to buy a competitors if it was cheaper.

e.g. coke consumers will choose to buy coke over pepsi even if its more expensive

29
Q

How does the availability of substitutes affect PED

A

If there are few substitutes that then the PED will be low and price inelastic

Whereas, if there are more substitutes PED will be high and price elastic

30
Q

How does proportion of income taken by the product affect PED

A

The smaller the proportion of income spent on a product the more price inelastic it will be

31
Q

How does luxury or necessity affect PED

A

Necessities are requires as part of a consumers daily needs, therefore these are inelastic in demand

Luxuries are not essential and therefore are more price elastic

32
Q

How does time affect PED

A

The longer the time period the more elastic the demand for a good or service is likely to be. (This is due to consumers having more time to search for substitutes.

And the opposite

33
Q

Why is PED important for businesses

A

If the product is price inelastic, raising the price will lead to an increase in total rev. Whilst, lowering the price will lead to a fall in total rev

If the product is elastic, raising the price will lead to a fall in total revenue. Whilst, lowering the price will lead to a rise in total rev

34
Q

What is YED

A

YED measures how responsive the quantity demanded is to a change in income

35
Q

What is the formula for YED

A

% change in QD / % change in income

36
Q

Is YED positive, negative or both

A

YED can be positive or negative

37
Q

What does a positive YED mean

A

The good is considered to be a NORMAL GOOD

38
Q

What does a negative YED mean

A

The good is considered to be an INFERIOR GOOD

39
Q

What does the numerical value >1 mean for YED

A

The good is a luxury good

Income elastic- demand is responsive to a change in income.

Demand rises when income rises

40
Q

What does the numerical value 0-1 mean for YED

A

The good is a necessity

Demand is not very responsive to a change in income

Income inelastic

41
Q

What does the numerical value <0 mean for YED

A

The good is inferior

Demand rises when income falls

The good is negative income elastic

42
Q

Why is understanding YED important for businesses

A

It helps them plan their production and products.

If a business can determine YED for its products it can predict changes income and either increase or decrease production

43
Q
A

BM Business theme 1 (4 decks)

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