1.2 the market

Question 1

what are the factors effecting demand

Answer 1

• substitute goods
• changes in consumer incomes
• fashions , tastes and preferences
• advertising and branding
• demographics
• external shocks

Question 2

what is substitute products and how does effect demand

Answer 2

• replacement goods
• increased price = increased demand

Question 3

how does changing in consumer income effect demand

Answer 3

• as income rises, demand for normal goods increases
• if income drops, demand for normal goods drop

Question 4

how does fashions, tastes and preferences effect demand

Answer 4

• if goods become more fashionable, demand increases
• if goods not trending, demand decreases (risks obsolete)

Question 5

how does demographics effect demand

Answer 5

• if size of population increases, demand increases

Question 6

how does external shocks effect demand

Answer 6

• unexpected event = demand changes
• e.g. COVID 19 = demand for face masks increases

Question 7

how does the demand curve move

Answer 7

• change in price = movement along demand curve
• a change in non price factors = shift entire demand curve left or right
• if demand increases = curve shifts right
• if demand decreases = curve shifts left

Question 8

what is supply

Answer 8

number of goods / services businesses are willing to sell in a time period

Question 9

what are the factors effecting supply

Answer 9

• changes in price of production
• new technology
• indirect taxes
• government subsidies
• external shocks

Question 10

how does changes in price of production effect supply

Answer 10

increased price = more expensive to produce, shifts curve to left

Question 11

how does new technology effect supply

Answer 11

advanced technology = lower cost of production, shifts curve to right

Question 12

how does government subsidies effect supply

Answer 12

reduces cost of production, shifts curve to right

Question 13

how does external shocks effect supply

Answer 13

unexpected events change supply, if effects the business negatively then curve moves left, if its positive curve moves right
e.g. covid 19 caused hotels to close, supply curve for hotels shifts left

Question 14

how is PED calculated

Answer 14

% change in quan demanded / % change in price x 100

Question 15

how do you interpret PED

Answer 15

• 1 is turning point where PED becomes price elastic or inelastic
• if PED above 1 = demand price elastic
• if PED below 1 = demand price inelastic

Question 16

what are the factors influencing PED

Answer 16

• number of substitutes / competitors
• relative effort / costs of switching to another product
• extent to which the product is considered a necessity
• perceived value of product
• percentage of income spent on the product

Question 17

how does PED effect decision making

Answer 17

when demand is price inelastic- businesses can raise prices to increase revenue

when price elastic - business will have to carefully consider changes to pricing strategy, lowering prices can increase quantity demanded however depends on competitors reaction

Question 18

what is the calculation for YED

Answer 18

% change in quantity demanded / % change in incomes x 100

Question 19

what is income elastic demand

Answer 19

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

Question 20

what is income inelastic demand

Answer 20

% change in incomes would lead to a proportionately lower percentage change in quantity demanded

Question 21

what are normal goods

Answer 21

when an increase in income leads to an increase in the quantity demanded

Question 22

what are inferior goods

Answer 22

an increase in incomes leads to a fall in demand

Question 23

how do you interpret YED

Answer 23

• income elasticity greater than 1 = demand income elastic
• income elasticity less than 1 = demand is inelastic

Question 24

how does YED influence decision making

Answer 24

• high YED effected by cyclical nature of economy, demand will fall for products with high YED
• goods that have high YED = likely to find demand and sales therefore more stable during economic shifts

Question 24

what are the factors influencing YED

Answer 24

• wether the product is considered necessity or luxury
• the price relative to peoples incomes