1.2 The Market Flashcards
Demand
Demand shows the amount of goods or services that a consumer is willing and able to buy at a given price over a period of time
Substitutes
A substitute product acts as an alternative to another good, therefore creating competition e.g. Coca-Cola and Pepsi Cola. If the price of good A increases, the demand for good B will increase and vice versa (There is a positive correlation)
Complementary goods
Goods that are bought alongside each other as they complement each other e.g. fish and chips, games and games console. If the price of good A increases, the demand for good B will decrease (There is a negative correlation)
Disposable income
Disposable income is income after taxes e.g. take home pay
Discretionary income
Discretionary income is after all necessary payments have been made e.g. insurance and mortgage
Advertising
A promotional method that involves the use of media to communicate with existing and potential consumers
Branding
A promotional method that involves the creation of an identity for the business that distinguishes the firm and its products from other firms
External shocks
External shocks are unexpected events that are outside of the businesses control but have a direct impact on the level of demand or ability to supply
Seasonality
A market that experiences peaks and troughs in terms of sales volume based upon the time of year
Supply
Supply shows the amount of goods or services that a business is willing and able to sell at a given price over a period of time
Costs of production
The expenditure incurred by a business when producing goods or services from factor inputs such as land labour capital and enterprise
Indirect taxes
Indirect taxes are charges , by the government, placed on goods and services produced by individuals and firms e.g. Value added tax (VAT), Duties
Government subsidies
Financial assistance given to individuals, firms and industries to provide a good or a service
Equilibrium
Where demand for a product is equal to the supply of that product (D = S)
Price elasticity of demand
A measure of the responsiveness of demand to a change in price i.e. what will happen to the demand for the product if its price changes
% change in quantity demanded / % change in price
Total revenue
The total amount of money coming into a business from the sale of goods or services
Price inelastic demand
The demand for a product is not very responsive to a change in price. If a product is price inelastic then a firm knows that if it raises price, even though demand will fall, total revenue should increase
Price elastic demand
A change in price leads to a proportionally greater change in demand. If a product is price elastic then a firm knows that if it lowers price, demand should rise and total revenue increase
Unitary price elasticity
A percentage change in price leads to an equal but opposite change in demand e.g. a 5% increase in price will lead to a 5% (equal) fall (opposite) change in demand. A change in price will not affect total revenue
Necessities
A product that is essential that customers will continue to purchase even if the price is high. A reduction in the price of necessities will not necessarily encourage customers to buy more.
Income elasticity of demand
A measure of the responsiveness of demand to changes in income i.e. what will happen to the demand for a product if consumers’ incomes change
% change in Quantity Demanded / % change in Income
Income elastic demand
A change in income will lead to a more than proportional change in demand, luxury goods are income elastic
Income inelastic demand
A change in income will lead to a less than proportional change in demand. Necessity goods are income inelastic
Unitary income elastic
A percentage change in income leads to an equal but opposite change in demand e.g. a 5% increase in price will lead to a 5% (equal) fall (opposite) change in demand.
