Demand And Supply Flashcards
What is included in a demand/supply graph?
Price Quantity Supply Line Demand Line Pe Qe
What is the point of equilibrium?
A state of balance between market demand and supply - there is no excess demand or supply
What will cause a movement in the line of demand/supply line?
a monetary change
What will cause a shift in the demand/supply line?
when a change in any other factor than price (such as tastes, advertising, population, income, substitutes, complementary, seasonality)
What is the point at Pe and Qe?
the price and quantity are at a certain point that everything is sold
What is another name for the equilibrium point?
the market clearing price
What is demand?
the level of interest customers have in buying a product. Usually effective if interest is backed up by payments if customers are willing/able
What are factors that affect the demand of a product?
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)
What are risks with demand?
Undiversified demand
Over-trading
What is undiversified demand?
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
What is over-trading?
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
How does price affect demand?
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
What is a substitute product?
goods that can be used in place of another normally in change with price and demand
What is a complementary good?
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)
What is a normal good?
any good which demand increases when income increases
What is consumer incomes impacted by?
impacted and increased by positive economic activity
What is a luxury good?
a good which demand increases more than proportionally as income rises
What is an inferior good?
A good that falls in demand due to an increases general income eg (own brand goods)
How do fashion, tastes and preferences impact demand of a product?
strong loyalty can allow owners to increase prices
- > stable demand is ideal
- affected by experiences, preferences and tastes
How does advertising and branding impact demand of a product?
- lots of effective advertising can increase profit over time
- branding is greater than advertising as branding can make the business memorable and have loyalty
How does demographics impact demand of a product?
- different age categories can boost certain products and influence around the industry
How do external shocks impact demand of a product?
- uncontrollable factors (likely to affect the whole industry)
- Regular and fairly common (small impacts)
How do seasonal variations impact demand of a product?
as some business are weaker in certain seasons whereas some business are strong throughout
What are seasonal variations?
changes in business activities/inventory/profit depending on seasonality of business
What assumes that all variables stay the same?
Ceteris Paribus - this is used when talking about the demand theory
What is a inverse relationship?
an increase price causes decline in quantity demand
What is a right movement on a graph of the equilibrium?
a extension which is an increase in demand but decrease in price
What is left movement on the graph of the equilibrium?
a contraction which is a decrease in demand but increase in price
What are supply curves?
a line showing the quantity of goods firms want to supply at different price levels.
What is supply?
the quantity of product that producers are able to deliver within a specific time period at a given price.
What factors can lead to a change in supply?
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
What are the axis on the graph?
x = quantity y = price
How do changes in costs of production impact supply change?
higher costs = lower incentive to supply
due to lower profit per unit
How do introduction in new technology supply change?
efficiency, production costs, almost always right
- eg robots
How do government subsidies impact supply change?
Fiscal Policy
promotes supply and financial contribution to suppliers
encourages supply
increase supply to the right
How do indirect taxes impact supply change?
onto goods and services
Can increase prices and cause the customers to pay the tax.
shifts left
How do external shocks impact supply change?
investing into varying stock can build up stock making it wasteful
caused by market price falling, global recession, market change
What is a market price?
The price of a commodity that has established by the market
How do physical constraints impact supply change?
Suppliers not able to cope with demand or even take advantage of successful opportunities
Eventually extra supply will reduce price (surplus)
How do prices of other goods and services impact supply change?
- 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
What is a shortage?
when there is more demand than supply which can create a black market for high value goods
What is a surplus?
when there is more supply than demand
What are 3 factors that are likely to lead to a fall in supply?
Restriction on availability of imported raw materials
Rise in indirect taxes
Rise in wages
What are examples of indirect taxes?
VAT
Excise tax tobacco
Customs duties on imports.
