Demand and Supply Flashcards
What is demand?
The ammount of a product that consumers are willing and able to purchase at any given price.
What is supply?
The ammount of a product which suppliers are willing to offer to the market at a given price.
How will suppliers attempt too maximise their profits?
By increasing the quantity offered for sale as the price of an item goes up.
What are movements along the supply curve cause by?
Changes in price.
What is the law of demand?
As price goes up demand falls and as price falls demand goes up.
What is market equilibrium?
Where the demand curve and supply curve intersect.
What can businesses determine from the market equilibirum?
Market price, market quantity.
Is market equilibrium fixed or non fixed?
Non fixed.
What does an outward shift in the demand curve mean?
More product demanded.
What des an inward shift in the demand curve mean?
Less product demanded.
What factors affect demand?
Increase in consumer income, changes in case and fashion, change in price of other goods, advertising or bad publicity, population changes, government legislation.
What creates a new equilibrium?
When the demand curve shifts.
What factors effect supply?
Change in costs, weather changes, new technology, legislation.
What is YED (income elasticity of demand)?
The responsiveness of demand to changes in income. It can be Elastic, Inelastic or Negative.
What is PED (price elasticity of demand)?
The responsiveness of demand to a change in price.
What does PED show us?
The sensitivity of demand for good/service to change in price.
Where is price likely to be elastic?
In markets with perfect competition.
What does it mean if price is highly elastic?
When price changes demand changes dramatically.
What does it mean if price is highly inelastic?
When price changes there is barley any change to demand.
If price is inelastic what does it mean the competition is like?
Low level of competition.
Why is it important to know wether price is inelastic or elastic?
It is important for decision making especially when marketing.
How can a business make their price inelastic?
Encourage consumer loyalty, reduce competition, increase brand value.
When are people likely to buy normal and luxary goods?
When income increases.
What are examples of normal goods?
Cars, furniture, washing machines.
