1.2 - The market

Question 1

Define demand

Answer 1

The amount of a product that consumers are willing and able to purchase at a given point in time.

Question 2

Give the factors affecting demand

Answer 2

Factors affecting Demand (DIE CASTS)

• Demographics (changes in)
• Incomes of consumers
• External shocks
• Complementary goods (price of)
• Advertising and branding
• Substitutes (price of)
• Tastes, fashions and preferences
• Seasonality

Question 3

Define supply

Answer 3

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

Question 4

Give the factors effecting supply

Answer 4

Factors affecting Supply (SITEC)
* Subsidies (from government)
* Indirect taxes
* Technology (introduction of new tech)
* External shocks (weather, interest rates)
* Costs of production

Question 5

Define Indirect taxes

Answer 5

A tax levied on goods or services as opposed to income or profit e.g. VAT, landfill tax, import duties

Question 6

What term describes a scenario where the price in a particular market is not set at the point where supply equals demand

Answer 6

Disequilbrium
There can be excess supply or demand

Question 7

What 2 terms can be used to describe the state where supply = demand?

Answer 7

Equilibrium price or market clearing price

Question 8

Define PED

Answer 8

The responsiveness of demand to a change in price

Question 9

Give the factors affecting PED

Answer 9

Factors Affecting PED (PAT BIN)
* Price of competitor goods
* Availability of substitutes
* Time
* Branding
* Incomes of consumers
* Nature of good/service

Question 10

What is inelastic and elastic PED?
Which PED values are elastic and inelastic?

Answer 10

Elastic:
Change in Q is greater than (>) change in P
Greater than 1 (ignoring minus)

Inelastic:
Change in Q is less than (>) change in P
Less than 1 (ignoring minus)

Question 11

Describe an inferior good

Answer 11

• An inferior good is one whose demand drops when people’s incomes rise (e.g. Aldi baked beans)
• Inferior good = negative YED
• Refers to YED only

Question 12

Define a normal good

Answer 12

• Normal good = positive YED
• Higher incomes = higher demand

Question 13

Give factors effecting YED

Answer 13

• Necessity
• Luxury – purchasing of luxury goods is discretionary (not essential).
• Price of product – demand for low cost items like pencils likely inelastic. Demand for houses likely elastic

Question 14

Give reasons why YED is useful for a business

Answer 14

• Predict demand to plan production
• Adapt product portfolio based on likely demand e.g. adjust balance of inferior, luxury, normal goods.