1.2 The Market Flashcards
What is demand?
Quantity of a good/service that consumers are willing/able to buy at a given price.
What does PIE-TAPS stand for in the context of demand?
- Price of Substitutes
- Price of Complements
- Income of Consumers
- External Factors
- Taste, Fashion, Preferences
- Advertising and Branding
- Population and Demographics
- Seasonality
How does the price of substitutes affect demand?
If the price of a substitute increases, consumers may switch to an alternative product.
What is the effect of the price of complements on demand?
Demand for one good affects the demand for another good consumed together.
What happens to demand when consumers’ incomes rise?
The demand pattern changes.
Name two external factors that can affect demand.
- Economic recession
- Interest rates
What role do taste, fashion, and preferences play in demand?
Fashion trends can influence consumer demand.
How does advertising impact demand?
Heavily advertised products with strong branding see an increase in demand.
What demographic trend in the UK is affecting demand?
A baby boom is increasing the demand for baby products.
How does seasonality affect demand?
Demand for certain products, like coats, increases in specific seasons.
What does the Law of Demand state?
If price increases, people buy less; if price decreases, people buy more.
What is supply?
Quantity of a good/service a producer is willing/able to supply to a market.
What does PETTS stand for in the context of supply?
- Production Costs
- External Shocks
- Technology
- Tax
- Subsidies
How do production costs affect supply?
If production costs increase, supply decreases due to less profit.
What are external shocks?
Events like oil price increases and tax rate changes that can affect supply.
How does technology impact supply?
New technology can increase supply by making production more efficient.
What effect do taxes have on supply?
Tax increases can lead to a decrease in supply due to higher costs.
What are subsidies?
Payments from the government to help businesses increase supply.
What does the Law of Supply state?
If market price increases, supply increases; if market price decreases, supply decreases.
What is market equilibrium?
The point where supply and demand curves intersect.
What should be included when drawing supply and demand graphs?
- Draw and label axis
- Plot curves correctly and label
- Plot initial equilibrium price
- Determine which curve to shift and label the shift
- Draw new equilibrium
What is Price Elasticity of Demand (PED)?
PED = % change in Demand / % change in Price
What does a PED value of 0 indicate?
Perfectly inelastic; price has no effect on demand.
What is an inelastic demand range for PED?
0 to -1; price has a small effect on demand.
