1.3 Introducing the market

Question 1

Define;
1) Effective demand
2) Individual demand
3) Market demand

Answer 1

1) The quantity that consumers are willing to buy at the current market price.
2) The demand of an individual or firm
3) The sum of ask individual demands in the market

Question 2

A Market

Answer 2

Is any medium in which buyers and sellers interact and agree to trade at a price.

Question 3

Draw a demand curve and show what would happen to quantity given an increase in demand

Answer 3

As shown, an increase in demand leads to an increase in quantity, whilst maintaining price level ‘P1’

Question 4

How do prices affect the demand/supply curve?

Answer 4

price cause movements along the demand and supply curves.

Prices do not cause shifts in demand and supply curves.

Question 5

What does each letter in the PIRATES mnemonic stand for?

Answer 5

Population
Income
Related goods
Advertising
Tastes and fashion
Expectations
Seasons

Question 6

What are the 3 different types of supply?

Answer 6

1) Joint supply
2) Composite supply
3) Competitive Supply

Question 7

Recall 3 reasons why the supply curve is upward sloping

Answer 7

1) If price increases, it’s more profitable for firms to supply the good
2) High prices encourage new firms to enter the market
3) Larger output increases costs, which are passed onto consumers in the form of higher prices

Question 8

What does each letter in the PINTSWC mnemonic stand for?

Answer 8

Productivity
Indirect Taxes
Number of firms
Technology
Subsidies
Weather
Costs of production

Question 9

How will the exchange rates affect the level of supply?

Answer 9

A decrease in the exchange rate boosts the costs of imports (raw materials), which increases the cost of production for firms, thus shifting the supply curve to the left.

Question 10

Define and draw the market equilibrium price

Answer 10

This is the price where supply meets demand, and has no tendency to change (P1Q1)

Question 11

What is the equilibrium in the market

Answer 11

Equilibrium in the market place means that the quantity suppliers wish to sell is exactly equal to the quantity customers wish to buy. Market clearing occurs at this price.

Question 12

When there is excess demand imminent impact
When there is excess supply imminent impact

Answer 12

1) Is a shortage of that particular good or service. The market is failing to clear because the current price (P1) is below the equilibrium level.

2) is a surplus of that particular good or service. Suppliers are unable to sell some of the goods and services are available to buy. The price is too high for some potential customers.

Question 13

Excess demand
Excess supply

Answer 13

1) Occurs when the quantity overtakes the quantity supplied = some people who want to buy at the current price will be unable to do so.

2) Occurs when the quantity supplied is greater than the quantity demanded.

Question 14

Draw and describe a market in excess demand

Answer 14

-P2 is below market equilibrium
- Demand > Supply
-Price increases, firms supply more, consumers demand less and market returns to equilibrium (P1)

Question 15

What are the cons of using the supply and demand model to explain real-world problems?

Answer 15

> They only show certain markets
Assume price increases means firms will supply more
Assume perfect information
Assume perfectly competitive markets

Question 16

What are the 3 different functions of the price mechanisms?

Answer 16

1) Rationing
2) Incentive
3) Signalling

Question 17

What is the difference between a mass market and niche market?

Answer 17

1) A mass market is the largest group of consumers for a product.

2) A niche market is a smaller market, focused on a specific product.

Question 18

Why are niche markets generally better at allocating resource?

Answer 18

As niche markets target the consumers directly, rather than generally, they are closer to the consumer and therefore have a better idea of who needs what goods.

Question 19

Describe the difference between primary and secondary research

Answer 19

Primary research is carried out directly ( e.g surveys, questionaries, focus groups, direct interviews)
Whereas secondary research is informations that has already been gathered out via third-party (govern)

Question 20

Evaluate the use of primary research over secondary research over secondary research

Answer 20

Primary research is expensive but provides more specific information than secondary research, which may not be useful for the business.

Question 21

Define market research

Answer 21

The collection of data in order to learn about the needs and wants of consumers.

Question 22

What is a disadvantage to using samples to analyse the market?

Answer 22

The samples used may be biased, and therefore give invalid results.

Question 23

What is market segmentation?

Answer 23

This is when the market is divided into categories of consumer based on their characteristics, ages, needs, etc.

Question 24

How could market segmentation benefit firms?

Answer 24

By categorising consumers based on their needs/wants, firms can better target their goods to fulfil these specific needs.

Question 25

How does a market map work?

Answer 25

It illustrates all the positions a product can take based upon two dimensions which are significant for consumers.

It then identifies which existing products meet which consumer needs, thus identifying gaps for new market participants to fill.

Question 26

Give examples of dimensions used in market mapping

Answer 26

High vs low price
High vs low volume
Heavy vs light
Good vs lesser quality

Question 27

When does a firm have a competitive advantage over other market participants?

Answer 27

This occurs when the firm in question produces better products than its competitors in the same market.

Question 28

How can a firm gain a competitive advantage?

Answer 28

It can use price, quality, cost or a niche market to give itself a unique features that makes it stand out from its competitors in the same market.

Question 29

What is product differentiation?

Answer 29

The act of distinguishing one product from another.

Question 30

How can value be added to products and services?

Answer 30

Value can be added to a to a product using a brand, quality, good service, unique features and convenience for the customer.

Question 31

How do firms in a perfectly competitive market determine the prices of their goods and services?

Answer 31

Firms must take the equilibrium price of the market, where supply=demand

Question 32

Describe the difference between stable markets and dynamic markets

Answer 32

A stable market rarely changes the prices of goods,

Whereas dynamic market prices are constantly.