1.2- The Market Flashcards
Personal selling salesman?
Used to sell cars or home improvements where the profit
Direct marketing?
Highly focussed targeted mail based on what customers have bought before
Definition of demand
Demand is the amount of a good that consumers are willing and able to buy at a given price
Non price factors that effects the demand
Price of substitutes
2. Alternative brands
3. Price of compliments
4. Changes in consumer income
5. Trends in fashion and tastes
6. Marketing, advertising and branding
7. Population structure / demographics
8. Time of year
9. Weather and climate
10. External shocks
Definition of supply
Supply is measured in terms of the quantity of a good or service that a producer is willing and able to make available on the market, at a given price, over a given period of time
Non price factors that effect supply
Cost of production - may decrease supply
- Introduction of new technology - more goods can be supplied
- Indirect taxes (e.g. VAT) - supply may decrease
- Government subsidies
- External shocks
When demand exceeds supply what could happen
Shortages
What is income elasticity of demand?
As consumer incomes change (up or down) so do demands. So a business can measure how much demand for a product or service will be affected by a change in consumers income.
What are normal goods?
Normal goods are those for which a consumer demand increases when income increases. YED would be a value greater than 0 but below 1 (e.g 0.4).
What are inferior goods?
Inferior goods are products where demand decreases as income increases. YED value for an inferior good will be a negative value (e.g -1.5).
What is a luxury good?
A luxury good is when an increase in income causes a larger increase in demand. YED value for luxury goods will be above 1 (e.g 2.5).
What is the formula for YED
% change in quantity demanded/ % change in income. X100
Why is YED used within businesses?
YED is used by businesses to help them decide what products and services they should offer in order to increase sales.
What is PED?
PED measures the responsiveness of demand to a change in price. PED values are always a minus and they can be either elastic or in elastic.
What is an elastic products PED
More than 1
What is an inelastic products PED
When the result is between 0 and -1
Factors influencing price elasticity of demand
Availability of substitutes
Frequency of purchase
Necessities
Luxury goods
What does PED cause a business to do in terms of their pricing strategies
Competitive pricing - used by business that sell very close substitutes, customer will have to judge aroduct on non price methods
Price skimming - starting high with price for new products, a business can maximise revenue before substitute can appear
What are factors influencing YED
Luxury goods
Normal goods
Inferior goods
Why does income change
If employees lose their job income will fall
Income will fall in times of a recession - business may need to cut costs (staff wages)
Income will rise if an employee gets promoted
Income will rise in times of economic growth - business may offer a pay rise
Why is YED used by businesses
To help them to decide what product or services to offer in order to increase sales
E.g if incomes rise they may want to offer more premium products
