1.2 The Market Flashcards
What is demand?
The amount of a product that consumers are willing and able to purchase at a given price
What’s the basic law of demand?
As price falls the quantity demanded will increase
What are 8 factors affecting demand?
Price of complementary goods Changes in consumer income Fashion tastes and preferences Advertising and branding Demographics External shocks Seasonality Price of substitute goods
What is supply?
The amount of a product that suppliers will offer to the market at a given price
What’s the basic law of supply?
The higher the price of a particular good the more that will be supplied to the market
What are 5 factors affecting supply?
Changes in the costs of production External shocks Introduction of new technology Indirect tax Government subsidies
Explain the interaction of supply and demand?
If the price is £3 and supply meets demand the market will clear
If the price increase to £5 there would be excess supply as at this price there wouldn’t be enough willing buyers
If the price fell to £1 there would be excess demand as many people would be happy to purchase goods at his price but not enough suppliers would be willing and able to supply at this price
What’s PED?
The responsiveness of quantity demanded to a change in price
How do you calculate PED?
%change in QD / % change in price
6 factors affecting PED?
Number of substitutes/competitors
Cost/Effort of switching to another product
Necessity
Brand strength
Time
Percentage of income spent on the product
Is the good price inelastic or elastic if the value is 0 1 1+ ?
0 inelastic
1 elastic
1+ high elastic
What is YED?
The responsiveness of demand to a change in income
Explain normal goods and inferior goods in relation to YED?
Normal goods- where income rises so does quantity demanded
Inferior- as income rises quantity demand falls
How do you calculate YED?
%change in QD / % change in Y
What are 3 factors that influence YED?
Product a necessity?
Product a luxury?
Price relative to people’s income (%)
