1.3 Introducing the market Flashcards
Define demand
The amount of a good or service that consumers are willing to purchase at a given price
Name 5 factors that influence demand
Substitutes Income Taste / fashion Interest Rates External Shocks
How do substitutes influence demand?
People will buy cheaper alternatives if they’re available
How do interest rates influence demand?
Interest rates affect spending
Interest rate high = less borrowing = less spending
Define supply
The amount of a good or service that firms are willing and able to supply at a given price
Give 6 factors that influence supply
Operating costs Changes in technology Government taxes Government subsidies Number of producers in a market External shocks
How can changes in technology influence supply?
New technology can make production more efficient and thus increase ouput
How do taxes influence supply?
They increase the cost of production and reduce output
How do subsidies influence supply?
They decrease the cost of production and increase output
How do the number of producers in a market influence supply?
The more companies producing a product, the higher its supply
Define excess demand
When the price is below the free market equilibrium and demand is above the supplied amount
Define Excess supply
When the price is above free market equilibrium and there is less demand for the product than is supplied
Define market clearing
Market forces eliminate an excess through market clearing which forces the price to return to the equilibrium
Define price mechanism
The way in which price responds to changes in supply and demand so that a new equilibrium is reached
Names the 3 parts of the price mechanism
Rationing
Signalling
Incentive
Explain how rationing works in the price mechanism
Resources are finite so not everyone can have everything they want so prices are bid up and so only those that can afford it can have it
Explain how signalling works in the price mechanism
Prices determine where and how resources should be allocated. If prices increase, it signals that demand is high
Explain how incentives work in the price mechanism
High prices attract producers to the market
Define mass market
A largely consumed good that’s bought and sold between vast amounts of people
Define niche market
A good targeted at a small group of people with specialised requirements that has low demand
Define market research
The way in which a business does research to find gaps in the market
Define primary research
Research carried out yourself
Define secondary research
Research collected by someone else
Define qualitative data
Using people’s opinions
Define quantatitive data
Using numbers and figures
Give 3 advantages of market research
Give a better view of the market
Allows you to look at opponents
Saves costs in the long run
Give 3 disadvantages of market research
Expensive, lowering profit margins
Time consuming
May not be reliable or accurate
Define market segmentagtion
Slitting the market up into identifiable groups of consumers that share a charateristic
Give 6 catagories of market segmentation
Demographic Geographical location Behaviour (e.g. brand loyalty) Psychological (e.g. lifestyle) Income Religion
What is a market map?
A diagram that shows 2 different aspects of brands within a market
Define market comparison
The way in which a product is viewed in relation to other products
Give 2 advantages of market mapping
Show gaps in the market
Allows firms to see if their product would be profitable before putting it on the market
Draw an example of a market map
(See 1.3 sheet)
Define competitive advantage
They way that a business can make its product appear superior to competition
In which 4 ways can a product gain a competitive advantage?
First movers advantage
Cost
Product differentiation
Branding
How does cost-plus pricing work?
Money is added on top of the costs of production
How does competitive pricing work?
Products are priced in line with competitors
How does price skimming work?
Products are priced highly
How does penetration pricing work?
Prices are set low and raised later on
How does predatory pricing work?
Prices are lowered to price competitors out of the market
How does psychological pricing work?
Products are prices highly to give the impression of luxury or products are priced at £n.99 to appear cheaper
Give 5 things that influence the pricing strategy a firm uses
Number of USPs Level of competition PED Demand Cost and the need to make profit
Define stable market
A market where the pace of change is very slow and market share is consistent
Define dynamic market
A market that is constantly moving and changing
