1.2 The Market Flashcards
what is demand
level of interest a customer has and willing to purchase the product
factors affecting demand
price
substitues (rival)
complementary goods
changes in consumer income
trends
adverting
external shocks
seasonality
what is supply
the amount the business is available to supply to consumers for purchase
factors affecting supply
changes in cost production
introduction to new technology
indirect taxes ( taxes on goods) (increase tax= increase costs.. )
government subsidies (give money to business)
external shocks
interaction of supply and demand
commodity markets (raw materials) are determined by supply and demand
= ig demand is higher than supply = increase price until demand falls back to level of supply
price adjusts until equilibrium of supply and demand
price elasticity of demand & equation
measures the responsiveness of demand due to a change in price
% change in demand / % change in price
interpreting price elasticity
between 0 and -1
= product is price inelastic , changes in price have small effect on demand
price elasticity greater than one
= price is elastic , prices changes have an effect
factors influencing price elasticity
different to a rival =:
product differentiation
availability of direct substitutes
branding and brand loyalty
income elasticity of demand & calculation
measures responsiveness of demand for a product to a change in real income
% change in demand / % change in real income
income elasticity of demand & calculation
measures responsiveness of demand for a product to a change in real income
% change in demand / % change in real incomei
interpreting income elasticity
inferior goods= negative
normal goods = between 0 & 1
luxury goods = greater than 1
benefits of income elasticity
sales forecasting
financial planning
product portfolio management
benefits of elasticity of demand
can help for forecasting sales ( product can stand out)
decide best pricing strategy to use
