1.2.1, 1.2.2, 1.2.3 Supply, Demand And Markets

Question 1

What factors affect demand

Answer 1

1 availability of substitutes, pricing of substitutes
2 complimentary products, if the demand for printers falls so does demand for printer ink
3 consumer income, higher income makes demand for luxury products rise
4 trends, warnings about sugar consumption and health scares decreases demand for sugary drinks
5 advertising and branding, increases sales, creates brand loyalty and stops demand from falling
6 demographics, changes in population
7 seasonal changes, hot summer increases demand for AC and fans
8 external chocks, COVID increasing demand for hand sanitiser

Question 2

Factors affecting supply

Answer 2

• cost of production
• indirect taxes, taxes increases the cost for the producer they will reduce supply
• subsidies, money given by the government to enhance supply
• new technology, more efficient production techniques will increase supply
• weather conditions, can have a big effect on agriculture
• external shocks, war can decrease the supply of certain products

Question 3

what is PED

Answer 3

• measures the responsiveness of demand to changes in price
  % change in quantity demanded / % change in price
• a figure greater than 1 = elastic product
• figure less than 1 = inelastic product

Question 4

what is the relationship between PED and revenue

Answer 4

• price elastic products want to decrease their prices to increase revenue
• price inelastic products want to increase their prices to increase revenue

Question 5

what is YED

Answer 5

• measures the responsiveness of demand to changes in demand
  % change in quantity demanded / % change in income
• 0-1 indicates normal goods, slight changes in demand when income changes
• 1+ indicates luxury goods, incomes rise and so does demand, if income falls demand falls rapidly
• negative number indicates inferior goods, demand for these products rise as incomes fall