1.2 Market Flashcards
What is demand?
The number of goods or services customers are willing to buy at a given price.
What are the seven factors leading to a change in demand?(CATSDIES)
1)Complementary goods
2)Advertising
3)Trends/Tastes
4)Seasonality
5)Demographic
6)Income change
7)External shocks
8)Substitute goods
What are substitute goods?
Replacement/alternative goods.
What are complementary goods?
Goods that are consumed together.
How does change in consumer incomes affect demand?
As consumer incomes rise/fall, demand for normal/inferior goods increase.
How does change in consumer taste effect demand?
If products become more fashionable, demand than increases.
How does advertising and branding effect demand?
If more money is spent on advertising than this increase consumer awareness and brand loyalty.
How does seasonality affect demand?
Demand varies at different times of the year.
How does demographic affect demand?
If the structure or size of a country’s population changes, then the demand for products will also change.
How do external shocks affect demand?
An unexpected event can change the demand.
What is supply?
Supply is the number of goods and services businesses are willing to sell at a given price during a specific time period.
Factors leading to a change in supply?(SPENT)
1)Subsidies
2)Production cost
3)External shocks
4)New technology
5)Indirect taxes
How does cost of production affect supply?
An increase/decrease in cost of production makes it more/less expensive to produce each unit and a business will be able to produce less/more at a given price.(EOS)
How does new technology affect supply?
Advances in technology will lead to lower costs of production.
How do indirect taxes affect supply?
Increased/decreased indirect tax on businesses can cause an increase/decrease in the cost of production.
How do government subsidies affect supply?
A subsidy given to businesses will reduce the costs of production.
How do external shocks affect supply?
An unexpected event can change the supply.
What is a market?
A market is any place that brings buyers and sellers together.
What is price elasticity of demand?
The responsiveness of quantity demanded in relation to a change in price.
What is the formula for price elasticity of demand?
PED=%Change in QD/%Change in price
Numerical value for elastic demand?
> 1 (Luxury products)
Numerical value for inelastic demand
Between 0 & 1 (Necessities, Addictive products)
what are the 5 factors influencing the price elasticity of demand?
1)Availability of substitutes
2)Proportion of income spent
3)Luxury or necessity
4)Time
5)Brand loyalty
How does brand loyalty affect PED?
Makes demand for a good more inelastic as consumers are willing to spend a higher price for a product due to its brand over a cheaper substitute.
How does availability of substitutes affect PED?
If there are fewer substitutes PED will be more price inelastic as consumers have no other choice.
How does the proportion of income taken up by the product affect PED?
The smaller the proportion of income we spend on a product the more price inelastic the demand will be.
Why do necessities have inelastic demand?
As they are required as part of consumers daily needs and therefore have no option but to buy it.
Why do luxury goods have elastic demand?
As they are not essential and there are many cheaper substitute goods.
How does time affect PED?
The longer/shorter the time period under consideration the more price elastic/inelastic the demand for a good is likely to be.
What pricing strategy is best employed for inelastic demand?
Price skimming?
What pricing strategy is best employed for elastic demand?
Competitive pricing.
What is income elasticity of demand?
The responsiveness of quantity demanded in relation to a change in income.
What is the formula for income elasticity of demand?
YED=%change in QD/%change in income
What is the numerical value for a luxury goods?
> 1
What is the numerical value for a necessity?
0-1
What is the numerical value for an inferior good?
<0
What are the factors in the economy influencing income elasticity of demand? (YED)
1)recession, wages fall
2)Economic growth, rising wages
3)Minimum wage legislation
4)taxation
