1.2 The Market Flashcards
What is Demand?
demand is the amount of a product that consumers are willing and able to purchase at any given price
What factors lead to a change in demand?
- Change in the price of substitutes e.g. pepsi and coke
- Price of compliments –> cornflakes and milk
- Change in consumer incomes –> Normal goods vs inferior goods
- Fashions, taste, and preferences–> snoods, increase in demand for bike due to triathlons.
- advertising and branding
- Demographics
- External Shock –> competition, government - taxes and laws, Economic climate
- Seasonality –>the seasons have an impact on what we buy as does calendar events
How do different demographics affect demand?
- Age–> distributions - centennials
- Gender –> Slightly more women than men
- Geographical –> more urbanisation, greater demand or school, hospital
- Other group –> single parent families, ethnic groups more demand for products associated with their culture immigration - polish products
What is Supply?
the amount of a product which suppliers will offer to the market at a given price
- the higher the price, the more will be offered in the market
What is fixed supply?
this is when there is a limit to supply, so price is irrelevant e.g. the number of seats in a cinema, tickets at the Wolves Civic
What factors lead to a change in supply?
- changes in the cost of production - raw materials, energy wages, rent machinery
- the availability of resources –> a lack of resources can reduce supply
- Introduction of new technology
- Indirect taxes –> e.g. VAT and excise taxes
- Government subsidies –> grants to reduce costs, farming and renewable power sources
- external shocks
- Bank of England –> interest rates
How do External shock affect supply?
- World events –> wars, financial crisis
- Weather –> impact on agriculture but also distributing good
- Government –> Bank of England increasing interest rates, increases costs of loan repayments, legislation can make markets less competitive
- Price of relate goods –>if similar goods are going up in price businesses might change to supply more of that product and reduce supply of its current product e.g. carrot and potatoes
How does the Bank of England affect supply?
- High interest rates –> good for savers, bad for loan repayments
- Low interest rates –> Bad for savers, good for loan repayers
- Low interest rates –> to increase consumer spending
What is Excess demand?
the position where demand is greater than supply and there are shortages inthe market
What is Excess Supply?
the position where supply is greater than demand and there are unsold gods in the market
What happens to price when demand falls?
- the business have to lower the price
- if they dont lower it they coud be too much insold stock
What happens to price when supply goes up?
- prices go down as they is too much supply
What is equilibrium?
also known as market clearing price where the amount supplied is completely brought by consumers
What is disequilibrium?
where the price in the market is not set at the point where supply and demand are equal
What is PED?
- Price Elasticity of Demand
- How responsive a products demand i to a change in the price
- understanding PED helps you set the right pricing
