1.2 The market Flashcards
Define demand
the amount of a product that consumers are willing and able to purchase at a given price
What does a supply snd demand curve look like
X axis is labelled quantity demanded
y axis is labelled price
Demand line is drawn down
Supply line is drawn up
What factors affect demand
- Price of substitute products
- Seasonality
- External shocks (concern for environment)
- Demographics (age of population)
- Advertising and branding
- Tastes and preferences
- Changes in consumer income
Define supply
the amount of a product that suppliers will offer to the market at a given price
What factors affect supply
- Changes in the costs of production (raw materials)
- External shocks
- Introduction of new technology making production process more efficient
Define price elasticity of demand
A measure of how much quantity demanded for a product in response to a change in price
What is the formula for price elasticity demand
Percentage change in quantity demanded / percentage change in price
What occurs when a price of a good increases for a price elastic product
- A bigger percentage decrease in quantity demanded
- Revenue falls
e.g. chocolate
What occurs when a price of a good decreases for an inelastic product
- Leads to a bigger percentage increase in quantity demanded
- Revenue rises
e.g iphones
What occurs when a price of a good increases for a price inelastic product
- Leads to a smaller percentage decrease in quantity demanded
- Revenues rise
e.g. oil
What occurs when a price of a good decreases for a price inelastic product
- Leads to a smaller percentage increase in quantity demanded
- Revenues fall
Percentage change formula
Percentage change= Change / original x 100
When calculating PED, when the figure is higher than 1, what does this mean
The product is price elastic
This means the change in demand is higher than the change in price
When calculating PED, when the figure is less than 1, what does this mean
The product is price inelastic
This means that the change in demand is less than the change in price
What type of product is sensitive to price change and give example
Elastic price products
E.g. selling price +10% = demand -12% meaning revenue falls
Example of elastic products
Chocolate brands like mars bar
Petrol stations
supermarket products
What type of product is less sensitive to price change and give example
Inelastic price products
E.g. Selling price +10% = demand -5% meaning revenue increases
Examples of inelastic products
Train tickets
Apple products
High end sporting event tickets
Factors that influence PED
- Number of substitutes
- Costs of switching to another product
- perceived value of the brand
Define Income elasticity of demand (YED)
Measures the extent to which the quantity of a product demanded is affected by a change in income
What is the calculation for YED
Percentage change in quantity demanded / percentage change in income
What does income ELASTIC demand mean
A percentage change in incomes would lead to a greater percentage change in the quantity demanded
E.g. Cars, holidays, luxury clothing
What does Income INELASTIC demand mean
A percentage chance in incomes will lead to a lower change in quantity demanded
E.g. necessities like food
