1.3 Flashcards
what are movements along the demand curve?
a change in the quantity demanded caused by price
what causes shifts in the demand curve? PIRATES
population
income
related/complement goods
advertising
tastes and fashions
expectations
seasons
what is effective demand?
the willingness and ability to buy
what is consumer sovereignty?
when consumers decide how resources are used as they decide what to buy
what is the invisible hand?
a greater demand leading to an incentive for firms to produce more, in order to meet that demand
what is ceteris paribus?
other things being equal, assuming other variables remain unchanged
what is supply?
the amount offered for sale at each given price level
what causes shifts in supply? CLTTC
costs of production
lack of materials
technology
tax and subsidies
change in objectives
what is a subsidy?
a grant from the government to a firm to increase supply
how do you calculate total cost?
size of subsidy x quantity sold
what is the market equilibrium price?
where demand equals supply aka the market clearing price all buyers and sellers are happy with the price therefore the market can be cleared
what needs to happen when there is excess of supply and why?
need to lower prices as it is above the equilibrium price
what needs to happen when there is excess of demand and why?
need to increase prices as it is below the equilibrium price
what do market forces always do?
push to equilibrium
what does a shift in demand mean for the supply curve?
a movement along
what does a shift in supply mean for the demand curve?
a movement along
what are limitations of price determination?
it only looks at competitive markets
ceteris paribus: in the real economy other variables change too
information tends to be asymmetric so consumers don’t have full information regarding products
what is the fallacy of composition?
when an economist infers that something is true for the whole economy from information derived from a part of it
what is the price mechanism?
the way decisions of consumers and firms interact to determine the allocation of scarce resources between competing uses
what are the 3 functions the price mechanism plays in a market?
signalling
incentive
rationing
what is the signalling function?
when price changes send contrasting messages to consumers/producers about whether to enter/leave a market
what do rising prices mean in regards to the signalling function?
they give a negative message to consumers to leave while sending producers a positive message to enter
what do falling prices mean in regards to the signalling function?
they give a positive message to consumers to enter while sending producers a negative message to leave
what is the incentive function?
when higher prices provide an incentive to existing producers to supply more because they provide the possibility of more revenue and increased profits
what does the incentive function mean for consumers?
they may think about value more
what is the rationing function?
when resources are scarce, demand exceeds supply and prices are driven up, it discourages demand to conserve resources.
what does a greater scarcity mean in regards to the rationing function?
a higher price and therefore a greater rationing, this function being associated with a contraction of demand.
what are the assumptions within the price mechanism?
competition exists
consumers act rationally
ceteris paribus
no reference to income distribution
what is a mass market?
the largest group of consumers for a product
what is a niche market?
a smaller market where a specific product is focused on
what can the price mechanism do?
allocate resources to where they’re needed and wanted
what does potential market growth mean?
markets and economies aren’t static
some niche markets may become mass
changes can be made in technology leading to creative destruction
what does market research require?
starting a new enterprise or launching a new product involving significant upfront costs aka sunk costs
what are examples of market research?
product testing and development
investment in equipment and machinery
initial marketing
what will firms do to minimise risk?
attempt to gather as much information as possible so that the idea is profitable in the long term
what is the purpose of market research?
to quantify potential demand
understanding how much consumers are willing to pay
understand consumer behaviour
study competitors
what are the 2 types of market research?
primary/field
secondary/desk
what is primary/field market research?
first hand up to date relevant information
what is secondary/desk market research?
second hand already gathered and published information
what are the 2 types of data?
quantitative
qualitative
what is quantitative data?
number based data from closed questions
what is qualitative data?
opinion/feeling based data from open questions
what are the 2 types of product development?
product orientation
market orientation
what is product orientation?
a way to create and develop a technically impressive product
then sell/convince to consumers it’s what they want
product testing led
push factors
what is market orientation?
concentrating on consumer preferences
meeting needs and wants more closely
market research led
pull factors
what are the 4 types of sampling?
random
quota
stratified
rank the types of sampling from most accurate and least bias to least
random
quota
stratified
what is random sampling?
where everyone has an equal chance of being selected
what is quota sampling?
dividing the target market into groups then a % are selected
what is stratified sampling?
dividing the target market int groups and selecting randomly
what is bias?
when information collected doesn’t accurately reflect the population
what is segmentation?
identifying different groups of consumers based on needs, wants,preferences and habits
list 9 methods of market research?
questionnaires
focus group
observations
test marketing
interviews
market reports
government data
internet
trade publications
explain and evaluate questionnaires.
a primary (quantitative,qualitative) method asking people a pre-planned set of open or closed questions
+ can ask very detailed questions
+ relevant to the firm
- time consuming
- expensive
explain and evaluate focus groups.
a primary (qualitative) method organising a group discussion on a topic led by the researcher
+ having relevant data
+ varied of answers
- specialists can be expensive
- time consuming
explain and evaluate observations.
a primary (qualitative, quantitative) method watching and studying the actions of consumers, suppliers and rivals
+ quick and simple
+ cheaper
- only collecting data from one area is quick
- reliant on accurate research
explain and evaluate test marketing.
primary (qualitative, sometimes quantitative) launching a product in a small area and evaluating the response to it
+ relevant feedback
+ no cost of national launch if poor results
- costs of production
- usually tested on a smaller market
explain and evaluate interviews.
primary (qualitative) asking one on one questions on the topic led by the researcher
+ ability to ask follow up questions
+ in depth responses
- smaller sample
- costly and time consuming
explain and evaluate market reports.
secondary (quantitative) organisations e.g. Mintel producing reports on trends in the market that are sold to firms
+ easy to access
+ reliable/accurate
- have to pay organisations e.g. Mintel
- not always relevant to firms now
explain and evaluate government data.
secondary (quantitative) national and local government providing data on population demographics
+ larger samples
+ range of available data topics
- may be out of date
- not specific to individual firms
explain and evaluate the internet
secondary (quantitative, qualitative) search engines offering data on competitors in the relevant market
+ easy to access
+ free to access
- not always reliable and accurate
- not specific to individual firms
explain and evaluate trade publications.
secondary (quantitative) specialist magazines reporting on market trends
+ specific to an industry
+ easy to access/quick
- not specific to individual firm
- rivals have access too
what is market mapping?
a way to identify the market positioning of your main rivals
positives of market mapping.
helps to spot gaps in the market
useful for analysing competitors
negatives of market mapping
the ‘gap’ doesn’t mean demand and there is no guarantee of success
what is product differentiation?
the extent to which consumers perceive a brand to be different e.g. function, design, quality, image
what is competitive pricing?
when costs need to be kept low as the margins are ‘tight’; because products are homogeneous there is little choice on price
what does competitive pricing mean in a stable market?
there is no fluctuation in supply and demand, therefore the price is consistent when the market is in equilibrium
what does competitive pricing mean in a dynamic market?
marketing has to adapt to keep up with social trends, changes in tech, competitive environment and consumer tastes; failure to keep up with trends will result in a loss of market competitiveness
what is adding value?
creating a finished product that is worth more to the consumer than the sum of the parts
what is market size?
a measure of the value of all the sales made by all the companies in a market or by volume (the quantity of sales made in a marketplace)
what is market growth?
the % increase in the size of the market
