1.2-markets Flashcards
What is demand?
The amount that society is willing to pay and able to buy at a set price at a certain time.
Changes on a demand curve
-changes in demand due to price leads to movement along a demand curve
-changes in demand due to non-price factors is shown by a shift along the demand curve
-if shifts to the left= lower amount demanded
-if shifts to the right= higher amount demanded
what are the 7 factors affecting demand?
1- price- if you increase the price, the demand will fall, whereas if you reduce the price, the demand will increase
2-changes in price of substitutes- goods/services that customers can easily swap to
3-changes in complimentary goods- goods that are purchased together
4-changes in consumer income- if income increases, demand for luxury increases, whereas if income decreases, demand for luxury decreases as customers focus on buying necessities
5-taste/fashions/trends- customer trends constantly changing- impacts demand
6-advertising/branding- demand increases if business has a strong brand image
7-external shocks- demand is out of businesses control
what is supply?
The amount of product or service that the business are prepared to produce and sell at a given price
what are changes on a supply curve?
if a price factor affects amount of supply available ,leads to a movement along the supply curve
-if a non-price factor affects amount of supply available, leads to a shift in the supply curve
What are the 5 factors affecting supply?
1-changes in production costs- eg. labour/transport/raw materials
-if costs increase, businesses may not be able to supply more
2-new technology- improving efficiency
3-indirect taxes- if higher, business has higher costs, so less supply whereas if tax is lower, costs are also lower so can increase supply
4-government subsidies- provide business with support- can increase supply
5-external shocks
What does a supply and demand graph show?
it provides an equilibrium price where both supply and demand curves meet and are equal (also market clearing price)
What is a surplus?
when supply exceeds demand- can be dur to pricing too high
price may need to be lowered to stimulate demand
what is a deficit?
when demand exceeds supply and creates a shortage
can be due to a low price or external shock
What is price elasticity of demand?
It measures the responsiveness of demand to a change in price
ped=% change in quantity demanded
———————————————
%change in price
- PED is always a negative
What is price elastic demand?
where a change in price leads to a more than proportional change in demand, so the product is sensitive to a change in price
-has values greater than 1
what is price inelastic demand?
where a change in price leads to a less than proportional change in demand, so the product isn’t sensitive to a change in price
-values are between 0-1
factors influencing PED?
-availability of substitutes
-demand for products becomes more sensitive
-price of complimentary goods
-becomes more price elastic
-if product is a necessity
-will be inelastic as customers have no choice
-if its a luxury good
-large investment so customers are sensitive to a change in price
What is income elasticity of demand?
-shows how demand changes with a change in income
YED=%change in quantity demanded
———————————————–
%change in income
what is an inferior good?
-products where demand decreases as income increases
-YED value less than 0 (negative value)
