20 Questions Flashcards
What are the 6 causes of changes in demand?
Price Incomes Fashions, tastes & preferences Advertising & branding External shocks Seasonal factors
What is demand
The quantity that customers are willing and able to buy at a given price in a given period of time.
What’s the basic law of supply
As the selling price of a product rises, so the businesses expand supply to the market
What are 4 main causes of changes in market supply
Costs of production
External shocks
New technology
Taxation and subsidies
What is supply
The quantity of a good or service that a producer is willing and able to supply onto the market at a given price in a given time period
What is a subsidy
Any form of government support- financial or otherwise- offered to producers and occasionally consumers
What’s an equilibrium
When there is a balance between demand abs supply
What is elasticity
The responsiveness of demand to a change in price or income
How do you calculate PED
% change in QD
_______________
% change in price
What is the value of PED if it’s price elastic
More than 1
What is the value of PED if it’s price inelastic
Less than 1
What is the value of PED if it’s unitary price elasticity
1
What is income elasticity of demand
Measures the extent to which the quantity of a produces demanded is affected by a change in income
How do you calculate YED
% change in QD
_______________
% change in income
What value of YED will a luxury product have
More than 1
What value of YED will a necessity have
Less than 1 but more than 0
What value of YED will an inferior good have
Less than 1
What’s PED
Measures the extent to which the quantity of a product demanded is affected by a change in price
What are some limitations of using elasticities
Difficult to get reliable data on how demand changes.
Other factors affect demand eg consumer tastes.
Many markets are subject to rapid technological change so previous data is less reliable.
Competitors will react- pricing decisions can’t be taken in isolation
What factors affect PED
Brand strength Necessity Habit Availability of substitutes Time
