Difficult cards Flashcards
What are some reasons that a consumer may choose to make sub-optimal decisions? (There are 6)
Biases - Toward a certain brand/product
A heuristic - A ‘thinking shortcut’ to avoid decision making I.E buying the cheapest product OR going back to the same product for the sake of it
Anchoring - Placing greater importance on a certain piece of information I.E The first price we encounter for a product is a good price.
Social Norms - Influenced by the actions of a larger social group.
Habitualism - Repeating the same pruchase without re-assesing decision
Altruism - A desire to act out of moral fairness
What are non-price factors that shift the demand curve?
PASIFIC
Population - Increase in population, increase in willigness and ability of consumers to buy goods and services, increase demand, shifts right
Advertising - Positive advertising may result in more consumers willing and able to purchase the good at the same price, shifting demand right
Substitute goods price - If their price increases, competitiveness of this good increases, willigness and ability to consume the good increases, shifting D right.
Income - Income rises, willigness and ability to consume good increases, demand curve shifts right
Fashion - Changes in taste toward the consumption of the good
Interest Rates - Rates decrease, cost of borring decreases, cheaper for conusmer to borrow and spend, meaning the willigness and ability to consume goods that are typically bought on credit will increase
Complementary goods price - I.E Bread and butter. If price for one decreases then willigness to buy other increases AND ability increases due to increase in disposable income.
What are the non-price factors that shift the supply curve?
Think PINTS in Weatherspoons are Cheap (PINTSWC)
Productivity - Labour productivity increases, there is an increase in output with no increase in cost, reducing cost of production, increasing firms willigness and ability to supply, shifting S right
Indirect tax - An expenditure tax that increases a firms costs of production. This reduces their willigness and ability to supply, shifting the supply curve left and up. The vertical distance between the two is the indirect tax.
Number of firms in the market - If these increase, the total supply increases, supply curve shifts right and down.
Technology - Improvements in tech will improve the productive efficiency of a company, reducing costs, increasing willigness and ability to supply, shifting supply right.
Subsidies - Money given to producers to reduce costs, increasing willigness and ability to supply, shifting supply right. The vertical distance between the two curves represents the subsidy.
Weather - Good weather can provide an increase in agricultural yield, increasing supply, shifiting right
Costs of factors of production - Rent, wages, raw material costs, transport costs, regulation, gas and electric. This decrease, willigness and ability to supply increases, shifting curve right.
What are the determinants of PED?
Think SPLAT
Substitutes - The higher number of close substitutes a good/service has, the more price elastic demand will be. The more price rises, consumers will switch to substitute products instead. The fewer substitutes, the close to price inelastic demand will be
Percentage of income - The greater the proportion of income a price change takes, the price elastic demand will be. For example if an expensive good rises 10% in price, this 10% will take up a large proportion of income, and demand will fall greater than if a product costing a few pence rises 10% in price.
Luxury or not - Luxury goods demand is more price elastic, necessities demand is more price inelastic.
Addiction - If the good is addicitive or habit forming, it will have a more inelastic PED. Consumers are less likely to care about the change in price
Time period - In the long run demand for goods and services is more likely to become price elastic as over time more substitues for the product enter the market.
What are the determinants of PES?
Think PSSST
Production Lag - Agricultural products have a large production lag which makes it harder for suppliers to respond to changes in demand and price. Supply for such products is therefore price inelastic. If the price for the good increases, then the producers cannot respond in time and the proportionate increase in quantity supplied is less than the rise in price.
Stock - If levels of stocks are high then it is much easier for a producer to responde to changes in demand and price, meaning supply of these goods is price elastic.
Spare capacity - The more spare capacity, the easier it is for producers to respond to changes in deamnd and price, meaning a business with large spare capacity has a more price elastic supply
Substitution of factors of production - If a producer can easily substititue factors of production, then it is easier for them to respond to changes in demand and price, making their supply more price elastic.
Time - In the Long Run price elasticity of supply is more elastic as it is easier for firms to adapt production to meet changes in demand and price.
In the SHORT RUN there is fixed factors of production making it alore more difficult for firms to increase production to meet changes in demand and price.
