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Business - Theme 1 > Demand And Supply > Flashcards

Demand And Supply Flashcards

1
Q

What is included in a demand/supply graph?

A 
Price
Quantity
Supply Line
Demand Line
Pe
Qe
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2
Q

What is the point of equilibrium?

A

A state of balance between market demand and supply - there is no excess demand or supply

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3
Q

What will cause a movement in the line of demand/supply line?

A

a monetary change

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4
Q

What will cause a shift in the demand/supply line?

A

when a change in any other factor than price (such as tastes, advertising, population, income, substitutes, complementary, seasonality)

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5
Q

What is the point at Pe and Qe?

A

the price and quantity are at a certain point that everything is sold

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6
Q

What is another name for the equilibrium point?

A

the market clearing price

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7
Q

What is demand?

A

the level of interest customers have in buying a product. Usually effective if interest is backed up by payments if customers are willing/able

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8
Q

What are factors that affect the demand of a product?

A

1) Price
2) Prices of other goods (Substitute/complementary goods)
3) Changes in consumer incomes( normal/luxury/inferior goods)
4) Fashion, tastes and preferences
5) Advertising and branding
6) Demographics
7) External shocks
8) Seasonal Factors (seasonal variations)

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9
Q

What are risks with demand?

A

Undiversified demand

Over-trading

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10
Q

What is undiversified demand?

A

When a business is solely supplying to a single business which is risky.
Also, when a business is reliant on one product
This can be reduced by spreading the demand over many businesses

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11
Q

What is over-trading?

A

Growing too quickly and not properly managing costs which leads to dis-economies of scale which can make a business try to over-cater for demand

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12
Q

How does price affect demand?

A

A high price can drive away people that cant afford it
It can also make the product make it seem like not a good value
Physiological pricing can taint brand images

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13
Q

What is a substitute product?

A

goods that can be used in place of another normally in change with price and demand

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14
Q

What is a complementary good?

A

goods that have a negative cross elasticity of demand. Due to products being strongly affected by the other performance (e.g. Cinema tickets and popcorn)

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15
Q

What is a normal good?

A

any good which demand increases when income increases

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16
Q

What is consumer incomes impacted by?

A

impacted and increased by positive economic activity

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17
Q

What is a luxury good?

A

a good which demand increases more than proportionally as income rises

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18
Q

What is an inferior good?

A

A good that falls in demand due to an increases general income eg (own brand goods)

19
Q

How do fashion, tastes and preferences impact demand of a product?

A

strong loyalty can allow owners to increase prices

  • > stable demand is ideal
  • affected by experiences, preferences and tastes
20
Q

How does advertising and branding impact demand of a product?

A
  • lots of effective advertising can increase profit over time
  • branding is greater than advertising as branding can make the business memorable and have loyalty
21
Q

How does demographics impact demand of a product?

A
  • different age categories can boost certain products and influence around the industry
22
Q

How do external shocks impact demand of a product?

A
  • uncontrollable factors (likely to affect the whole industry)
  • Regular and fairly common (small impacts)
23
Q

How do seasonal variations impact demand of a product?

A

as some business are weaker in certain seasons whereas some business are strong throughout

24
Q

What are seasonal variations?

A

changes in business activities/inventory/profit depending on seasonality of business

25
Q

What assumes that all variables stay the same?

A

Ceteris Paribus - this is used when talking about the demand theory

26
Q

What is a inverse relationship?

A

an increase price causes decline in quantity demand

27
Q

What is a right movement on a graph of the equilibrium?

A

a extension which is an increase in demand but decrease in price

28
Q

What is left movement on the graph of the equilibrium?

A

a contraction which is a decrease in demand but increase in price

29
Q

What are supply curves?

A

a line showing the quantity of goods firms want to supply at different price levels.

30
Q

What is supply?

A

the quantity of product that producers are able to deliver within a specific time period at a given price.

31
Q

What factors can lead to a change in supply?

A

1) changes in costs of production
2) introduction of new technology
3) indirect taxes
4) government subsidies
5) external shocks
6) physical constraints
7) prices of other goods and services

32
Q

What are the axis on the graph?

A 
x  = quantity
y = price
33
Q

How do changes in costs of production impact supply change?

A

higher costs = lower incentive to supply

due to lower profit per unit

34
Q

How do introduction in new technology supply change?

A

efficiency, production costs, almost always right

- eg robots

35
Q

How do government subsidies impact supply change?

Fiscal Policy

A

promotes supply and financial contribution to suppliers
encourages supply
increase supply to the right

36
Q

How do indirect taxes impact supply change?

A

onto goods and services
Can increase prices and cause the customers to pay the tax.
shifts left

37
Q

How do external shocks impact supply change?

A

investing into varying stock can build up stock making it wasteful
caused by market price falling, global recession, market change

38
Q

What is a market price?

A

The price of a commodity that has established by the market

39
Q

How do physical constraints impact supply change?

A

Suppliers not able to cope with demand or even take advantage of successful opportunities
Eventually extra supply will reduce price (surplus)

40
Q

How do prices of other goods and services impact supply change?

A
  • increased competition and impact supply
  • increased firms supply curve to right causing increased supply
  • if product isn’t profitable it will lead to decreased supply
41
Q

What is a shortage?

A

when there is more demand than supply which can create a black market for high value goods

42
Q

What is a surplus?

A

when there is more supply than demand

43
Q

What are 3 factors that are likely to lead to a fall in supply?

A

Restriction on availability of imported raw materials
Rise in indirect taxes
Rise in wages

44
Q

What are examples of indirect taxes?

A

VAT
Excise tax tobacco
Customs duties on imports.

Business - Theme 1 (21 decks)

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