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A Level Business Pearson > 1.2 The Market > Flashcards

1.2 The Market Flashcards

1
Q

define complementary goods

A

goods that are purchased together because they are consumed together

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2
Q

define demand

A

the quantity of a product bought at a given price over a given period of time

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3
Q

define demand curve

A

a line drawn on a graph that shows how much of a good will be bought at different prices

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4
Q

define inferior goods

A

goods for which demand will fall if income rises or rise if income falls.

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5
Q

define normal goods

A

goods for which demand will rise if income rises or fall if income falls

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6
Q

define substitute goods

A

goods that can be bought as an alternative to others, but perform the same functions

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7
Q

define subsidy

A

a grant given to producers, usually to encourage the production of a certain good

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8
Q

define supply

A

the amount of product that suppliers make available to the market at any given price in a given period of time

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9
Q

define supply curve

A

a line drawn on a graph that shows how much of a good sellers are willing to supply at different prices

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10
Q

define equilibrium price/market clearing price

A

the price where supply and demand are equal

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11
Q

define excess demand

A

the position where demand is greater than supply at any given price and there are shortages in the market

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12
Q

define excess supply

A

the position where supply is greater than demand at a given price and there are unsold goods in the market

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13
Q

define total revenue /expenditure

A

the amount of revenue generated from the sale of goods calculated by multiplying price by quantity in a given period of time

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14
Q

define price elastic demand

A

a change in price results in a greater change in demand

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15
Q

define price elasticity of demand

A

the responsiveness of demand to a change in price

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16
Q

define price inelastic demand

A

a change in price results in a proportionately smaller change in demand

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17
Q

define discretionary expenditure

A

non-essential spending

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18
Q

define income elastic demand

A

the percentage change in demand for a product id proportionately greater than the percentage change in income

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19
Q

define income elasticity of demand

A

the responsiveness of demand to a change in income

20
Q

define income inelastic demand

A

where the percentage change in demand is proportionately less than the percentage change in income

21
Q

what is a supply and demand diagram?

A

plots quantity of a product in supply or demand against a range of different prices
has two curves, one for supply and one for demand

22
Q

what is the relationship between demand and price?

A

inproportionate
d curve goes downwards
high price = less demand as less willing to pay more
low price= high demand as more willling to pay less

23
Q

what is the relationship between supply and price?

A

proportionate
s curve goes upwards
higher price = high supply
low price = less supply

24
Q

why would producers and sellers aim to maximise their profits?

A

higher price -> higher profit
-> incentive to expand production and increase supply
- althoough inc supply -> inc costs

25
Q

what is the equilibrium price and what does it mean for supply &demand?

A

when Q for demand is = Q for supply
on the graph where two curves meet

26
Q

when does a surplus occur?

A

when price increases
moves curve to right for supply and demand to the left
Q demanded is less than Q supplied

27
Q

when does a shortage occur?

A

when price decreases
supply moves to left
demand moves to right
Q demanded is more than Q supplied

28
Q

what are the other factors that demand is influenced by?

A

Substitutes - e.g. price change of Margerine will cause change in demand for butter.
Complementary products - if price for one increases, demand for both fall
Consumer income - higher income -> more demand for expensive
Consumer tasts and preferences
Advertising and Branding
Demographics
Seasonal changes
External shocks

29
Q

what are factors which supply is influenced by?

A

Cost of production
Indirect taxes - taxes on goods or services like VAT
Subsidies - helps with costs of suppling more
New technology -> efficient production techniques -> cost savings
Weather conditions
External shocks e.g. covid, war

30
Q

what will happen to the demand curve if there is a rise in demand?

A

moves to the right
price needs to rise to clear excess demand
new equlibrium Q is reached at a higher price than before

31
Q

what will happen to the demand curve if there is a fall in demand?

A

moves to the left
price needs to fall to clear excess supply
new equilibrium Q is reached at a lower price than before

32
Q

what will happen to the supply curve if supply rises?

A

moves to the right
price needs to fall to clear excess supply
new equilibrium Q is reached at a lower price

33
Q

what will happen to the supply curve if supply falls?

A

moves to the left
price needs to rise to clear excess demand
new equilibrium Q is reached at a higher price

34
Q

what is the formula for price elasticity of demand?

A

PED = %change in Q demanded/ %change in price

35
Q

what do values of PED mean?

A

always a minus - ignore it
if greater than 1 = price elastic
if less than 1 = price inelastic

36
Q

for elastic products, out of % change in price and % change in Q demanded is higher?

A

% change in demand

37
Q

for inelastic products, out of % change in price and % change in Q demand is higher?

A

% change in price

38
Q

what price elasticity does neccesities have?

A

inelastic
as changing prices wont effect demand much as ppl are going to buy them anyway
but if customers switch to competitor products -> elastic

39
Q

what price elasticity do inferior goods have?

A

elastic
as demand levels will change according to price

40
Q

what are some factors which effect price elasticity?

A

Neccesity/Inferior
how differentiated the business is -> more = less price elastic as customers wont switch even if price changes
alternative products
income elasticity
how often a customer buys the product
PED can change due to uncertainties

41
Q

how will a demand curve show a product that is price elastic?

A

a shallow demand curve
shows demand for product is v dependant on price
small change in price -> large change in demand

42
Q

how will a demand curve show a product that is price inelastic?

A

a steep demand curve
product is not dependant on price
large change in price not lead to large change in demand

43
Q

how can price elasticity affect sales revenue?

A

if price elastic = price inc -> sales dec, money lost from % dec in sales more than % money gained for inc in price
-inc sales revenue by reducing price
if price inelastic = inc in price -> inc in sales, money lost from %decrease in sales will be less than money gained from % increase in price
-inc sales by dec price only for a short time

44
Q

what is the formula for income elasticity of demand?

A

IED =% change in Q demanded/ % change in income

45
Q

how does whether the product is a neccesity, inferior and luxury affect IED?

A

neccesity = positive IED, as income rises, demand rises - proportional relationship
inferior= negative IED, as income rises demand falls, disproportionate relationship
luxury = Positive IED, income rises so does demand

46
Q

How can PED help a business make choices?

A

decide whether to rise or lower prices and see its affect on sales revenue
elastic = set low and comp prices -> inc revenue
inelastic = high prices and price skimming to inc revenue
deciding what products to promote depending on whether incomes rise or fall

A Level Business Pearson (40 decks)

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