1.2 Market Flashcards
What is demand?
The amount of a product that consumers are willing and able to purchase at any given price
What is demand concerned with?
What consumers are actually able to buy (what they can afford to and would buy), rather than what they would like to buy
Draw a demand curve
What does the demand curve show?
The quantity of a good or service that will be demanded at any given price
Which direction does the curve slope? Why?
Always downwards from left to right. This is because demand and price have an inverse relationship.
What happens to demand when price changes?
Price changes lead to an extension or contraction in quantity demanded
What factors lead to a change in demand?
• Price of substitutes
• Price of compliments
• Seasonality
• Demographics
• Fashion, taste and preference
• Changes in consumer income
• External shocks
• Advertise and brand
What does price of substitutes mean?
Many goods sold by businesses have substitutes, for example, Coca-Cola and Pepsi
How does this affect demand?
If the price of a substitute product falls, the quantity demanded for the substitute rises. As a result, the demand for the product would fall.
What does price of complements mean?
Consumers sometimes purchase certain goods together, for example cornflakes and milk
How does this affect demand?
If the price of a complement product falls, the quantity demanded for the product rises
What does changes in consumer income mean?
The amount of money people earn will influence the amount and type of goods they buy
How does this affect demand?
Generally when income increases, demand for goods will also rise. However, a minority of products see the inverse; Heinz will be bought over unbranded beans.
What does fashions, tastes and preferences mean?
Over a period of time, demand patterns change because of changes in consumer tastes and fashion. For example, the clothing industry is in strongly influenced.
How does this affect demand?
If a market is in decline, then demands for these goods and services will fall
What does advertising and branding mean?
Businesses try to influence demand for their products through advertising and other forms of promotion. For example, Sky spent £264 million on advertising.
How does this affect demand?
If goods are heavily advertised demand for them is likely to increase or investing heavily into branding can also increase demand
What does demographics mean?
These include age distribution, gender distribution, geographical distribution and ethnic groups. For example, with more people over 60, demand for care homes will increase.
How does this affect demand?
As population grows there will be an increase in demand for nearly all goods and services. However, demand is also affected by the structure of the population.
What does external shocks mean?
Factors beyond the control of the businesses can have an impact on the demand for products. For example, competition, economic climate etc.
How does this affect demand?
Depending on the external shock, they can either increase or decrease demand
What does seasonality mean?
Some goods and services have seasonal demand, so demand rises at particular times of year. For example, garden furniture in spring.
How does this affect demand?
In particular times of year, demand will have a significant peak but also have significant drops too
What is supply?
The amount of a product which suppliers will offer to the market at a given price. The higher the price of a particular good, the more that will be offering to the market.