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A LEVEL BUSINESS - ALL > 1.2 the market > Flashcards

1.2 the market Flashcards

1
Q

what is demand?

A

the amount of a product that consumers are willing and able to purchase at a given price

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2
Q

why is demand important?

A

it affects the attractiveness of a market and the potential for sales

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3
Q

what is the y axis on a supply graph?

A

price

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4
Q

what is the x axis on a supply graph?

A

quantity

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5
Q

what way does the demand curve slope and why?

A

downwards, because the quantity demanded is lower at a higher price

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6
Q

which factors affect demand?

A

-price of substitute products
-price of complementary products
-seasonality
-external shocks
-demographics
-advertising and branding
-fashion, tastes and preferences
-changes in customer incomes

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7
Q

price of substitute products

A

if a supermarket own-brand version of a branded item has a lower price this will affect demand of the branded item

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8
Q

seasonality

A

-demand for goods at different times of the year
-e.g. Christmas goods, garden goods in spring.

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9
Q

external shocks

A

-factors beyond the control of a business
-eg: arrival of a competitor in the market; government legislation; economic climate; social factors (increase in social media, concern for the environment)

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10
Q

price of complementary products

A

-sometimes products are bought together, such as burgers and tomato ketchup
-if the price of burgers goes down then more ketchup might be bought

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11
Q

demographics

A

the make up of a population (eg: more women than men) will influence the demand for certain goods

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12
Q

advertising and branding

A

if there is a successful advertising campaign the demand for some items might go up

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13
Q

changes in consumer incomes

A

if salaries go up then the demand for eating out or holidays (normal goods) will go up, if salaries go up then the demand for public transport (inferior goods) decreases

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14
Q

fashion, tastes and preferences

A

will increase sales in certain items, such as types of cars, clothing, types of foods

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15
Q

what does a shift the demand curve to the right mean?

A

demand increases

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16
Q

what is supply?

A

the amount of a product that suppliers will offer to the market at a given price

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17
Q

the higher the _______ of a particular good or service the more that will be supplied to the market

A

price

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18
Q

where does supply slope and why?

A

upwards:
as a product’s price rises, the business would tend to be more willing to make it.

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19
Q

does supply change in all cases?

A

in some cases, supply will not change no matter what the price is (eg: the number of seats at a concert)

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20
Q

factors affecting supply

A

-external shocks
-changes in the costs of production
-new technology
-indirect taxes
-government subsidies

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21
Q

examples of changes in cost of production:

A

wages, raw materials, energy, rent and machinery

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22
Q

examples of external shock

A

world events/wars and weather effects

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23
Q

what is indirect tax?

A

charged on producers of goods and services and is paid by the consumer indirectly (eg: VAT)

24
Q

what does a shift to the right on a supply curve mean?

A

increase in supply

25
Q

how is the price in a market set?

A

-where the wishes of consumers are matched exactly with those of producers (equilibrium)
-where supply and demand meet

26
Q

what causes surplus/excess supply? (in relation to price)

A

not be enough willing buyers (when price rises)

27
Q

what causes shortage of supply/excess demand? (in relation to price)

A

many buyers would be happy to purchase goods at a lower price, however not enough is produced

28
Q

at prices below the equilibrium excess _______ exists

A

demand

29
Q

at prices above the equilibrium excess _______ exists

A

supply

30
Q

what is price elasticity of demand?

A

responsiveness of quantity demanded to a change in price

31
Q

what does a steep demand curve represent?

A

a relatively price inelastic product

32
Q

what does a flat demand curve represent?

A

a price elastic product

33
Q

what does a price increase do to a price elastic product?

A

leads to a bigger percentage decrease in quantity demanded than the percentage change in price - revenues fall

34
Q

what does a price increase do to a price inelastic product?

A

leads to a smaller percentage decrease in quantity demanded than the percentage change in price

35
Q

what does a price decrease do to a price inelastic product?

A

leads to a smaller percentage increase in quantity demanded than the change in price

36
Q

what does a price decrease do to a price elastic product?

A

leads to a bigger percentage increase in quantity demanded - revenues rise

37
Q

how to calculate PED

A

percentage change in quantity demand/percentage change in price

38
Q

a PED above 1 is…

A

price elastic demand

39
Q

a PED below 1 is…

A

price inelastic demand

40
Q

what to ignore while calculating PED

A

the negative sign

41
Q

how does having a price inelastic product impact decision making?

A

-may raise prices to increase revenue

42
Q

how does having a price elastic product impact decision making?

A

lowering prices could significantly increase the quantity demanded, boosting sales revenue, as long as competitors don’t react

43
Q

which factors affect PED?

A

-number of substitutes/competitors
-costs of switching to another product
-extent to which the product is considered a necessity
-perceived value of the brand

44
Q

what is income elasticity of demand?

A

the responsiveness of demand to a change in income

45
Q

what does an income elastic demand mean?

A

a percentage change in incomes would lead to a proportionate or greater percentage change in the quantity demanded

46
Q

examples of products with income elastic demand:

A

cars, TVs, holidays, clothing

47
Q

normal goods

A

-an increase in incomes leads to an increase in the quantity demanded
-have a positive income elasticity of demand

48
Q

what does an income inelastic demand mean?
(+ which products are these?)

A

-a percentage change in incomes will lead to a proportionately lower change in the quantity demanded
-these products might be considered necessities

49
Q

inferior goods

A

-an increase in incomes will lead to a fall in demand/a decrease in incomes will lead to an increase in demand
-have a negative income elasticity of demand

50
Q

how to calculate income elasticity of demand

A

percentage change in quantity demanded/percentage change in income

51
Q

a YED above 1 is…

A

income elastic demand

52
Q

a YED below 1 is…

A

income inelastic demand

53
Q

how does inelastic income elasticity of demand affect decision making?

A

-businesses selling goods that have income inelastic demand are likely to find demand, and therefore sales, more stable during economic shifts
-it should use economic factors to help plan for changes in production

54
Q

how does elastic income elasticity of demand affect decision making?

A

-businesses that sell goods with high income elasticity will be affected by the cyclical nature of the economy
-in a recession, demand will fall significantly for products that have a high income elasticity of demand
-it should use economic factors to help plan for changes in production (eg: a supermarket stocking luxury products with a high YED may switch to value brands with a lower YED or even inferior goods)

55
Q

factors influencing income elasticity of demand:

A

-whether the product is considered a necessity
-whether the product is considered a luxury
-the price relative to people’s incomes (%) -> (the YED of a chocolate bar is relatively inelastic as it costs a small percentage of most people’s income)

A LEVEL BUSINESS - ALL (7 decks)

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