1.2 Markets Flashcards
Definition of Demand
Quantity of a product that consumers are able and willing to purchase goods/services
Relationship between demand and price
As prices falls consumers will demand more
Price rise consumers demand fall
Factors affecting demand
Changes in the prices of substitutes and complements
Scarcity of the product good
Changes in consumer incomes
Fashions, tastes and preferences
Advertising and branding
Demographics
External shocks
Seasonality
Definition of Normal Good
Goods for which an increase in income leads to an increase in demand
Definition of Inferior goods
Goods for which an increase in income leads to a fall in demand
Definition of Supply
The quantity of a product that producers are willing and able to provide
What is the relation between supply and price
As price rise supply rises
As price falls supply falls
Factors affecting supply
A change in the cost of production
Introduction of new technology
Indirect tax
Government subsidies
External shocks
Definition of Costs of Production
The total cost incurred by a business to produce a specific quantity
Definition of Indirect Taxes
Mains one in the UK are VAT and Duty
Definition of Government Subsidies
The government provide firms funding toward supply
Examples of external shocks
Weather
Worlds events
Government
Definition of Equilibrium Price
The price at which supply is equal to demand
Definition of Excess demand
Shortage of goods in the market (more demand than supply)
Excess supply
A surplus of goods in the market
Definition of Price Elasticity of Demand
The changes in demand as a result of a change in price
PED formula
% change in quantity demanded/% change in pair
Percentage change formula
( new value - old value ) /old x100
Definition of Price Elastic
The percentage change in quantity demand is sensitive to change in price
When PED is greater then 1
Price inelastic
Where the percentage change in quantity demand is insensitive to a change in price
When PED is less then 1
Factors affecting PED
Time
Competition
Branding
Proportion of income it takes up
Type of good
Definition of Income Elasticity of Demand (YED)
The responsiveness of the quantity demanded to a change in income
YED formula
% change in quantity demand / % change in income
Results of YED
Negative/less than 0 it is an inferior good
0 - 1 is an normal good
Greater then 1 is a luxury
