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Business - Blackwell > EI - Demand and Supply and Market Forces (External Influences) > Flashcards

EI - Demand and Supply and Market Forces (External Influences) Flashcards

1
Q

Define Demand.

A

The amount of a good / service that customers are willing and able to buy at any given price

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2
Q

Define Supply.

A

The amount of the good / service that sellers are willing and able to sell at any given price

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3
Q

What is a Market?

A

Any situation where buyers and sellers are in contact in order to establish a price

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4
Q

On a Demand and Supply diagram what is on the y axis?

A

Price

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5
Q

On a Supply and Demand graph what is on the x axis?

A

Quantity Demanded

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6
Q

In Equilibrium Demand is […….] to Supply

A

Equal

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7
Q

In equilibrium there is no […….] stock

A

Unsold

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8
Q

If demand is high what will firms do?

A
  • Firms will decide to increase prices of the product

- Companies also want to maximise profit so they will increase supply

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9
Q

What happens if there is excess supply in a market?

A

The price of the goods will decrease in order to increase demand and reach equilibrium

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10
Q

How does price affect the demand curve?

A

Price causes movements along the Demand curve not shifts

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11
Q

Define equilibrium?

A

The situation in a market when demand is equal to supply

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12
Q

What are the factors that effect demand?

A
  • Price
  • Income
  • Wealth
  • Advertising
  • Tastes and Fashion
  • Demographics
  • Government Intervention
  • Price or other goods
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13
Q

Factors that affect demand - how does price influence demand?

A
  • Higher the price the lower the Quantity Demanded, vice Versa
  • Remember it’s a movement along the Demand curve not a shift!!
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14
Q

Factors that affect demand - How does Income influence demand?

A
  • Increase in income leads to an increase in demand for most goods (normal goods)
  • However some goods such as inferior goods, their demand goes down as income rises
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15
Q

Factors that affect demand - How does Wealth influence demand?

A
  • Wealth is not the same as income
  • When an asset you own rises in value you feel richer even though your income has not increased.
  • They feel more confident about spending more
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16
Q

Factors that affect demand - How does Advertising influence demand?

A
  • Puts The product into the public eye, in order to become more well known
  • Successful promotion campaigns shifts the demand curve to the right.
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17
Q

Factors that affect demand - How does Tastes and Fashion influence demand?

A
  • Brand is seen more valuable than the actual product
  • Consumers regard these products as essential for their lifestyle
  • More people desire the product so the demand curve shifts to the right
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18
Q

Factors that affect demand - How doe Demographics influence Demand?

A
  • Larger population means more spending
  • Shifts in the age structure of the population, business need to be aware of because young people buy different things to older people
  • A change in the gender ratio business need to be aware of because men buy different products to women
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19
Q

Factors that affect demand - How does Government action influence Demand?

A
  • Campaigns ran by the government - eg. Live a healthier lifestyle
  • These campaigns alter patterns of consumption
  • This would make the Demand curve for firms selling healthier goods shift to the right
20
Q

Factors that affect demand - How does the price of other goods influence demand?

A

• Substitutes
- Can be used instead of another because it performs the same sort of function
- In order to work have to be close substitutes, could be long term or short term price change
- An Increase In price of good A reduced the demand for Good A, Good B is a substitute of Good A meaning that Good A’s price rise causes the demand for Good B to increase
• Compliments
- Are products that are joint in demand, when one is bought so is the other
- If there is an increase in demand for DVD’s there will also be an increase in demand for DVD Players because DVD Players are a compliment of DVD’s
- Fall In the price of DVD Players moves consumers along the existing demand curve, moves along the curve
- Therefore for DVD’s the Demand curve shifts!

-

21
Q

Define a Compliment.

A

A product that is used, and is therefore bought in conjunction with another

22
Q

Define a Substitute.

A

An alternative product that serves the same function.

23
Q

Factors that influence Supply.

A
  • Price
  • Costs
  • Tax
  • Subsidies
  • Price of Other Goods
24
Q

What is meant by Price?

A

The amount that a customer is willing and able to pay

25
Q

Factors that influence supply - Price.

A
  • When prices are low business supply less because it is less profitable to do so
  • When prices are high business supply more
  • Opposite to the demand and price relationship
26
Q

Who do costs affect?

A

Costs affect the business not the consumer

27
Q

Factors that influence supply - Costs

A
  • Fall In Costs will cause Supply to rise
  • When Costs go up supply will go down
  • If the rate of interest goes down firms costs of borrowing will fall so it will have more money available, it can supply more.
  • Positive changes send the supply curve to the right
  • Negative Changes shift the curve to the left
28
Q

Factors that influence supply - Tax

A
  • Government puts a tax on product in order to raise revenue or to discourage the use of a product as it may be harmful (indirect tax)
  • Tax increases costs and shifts supply curve to the left
29
Q

When do we know if a consumer has been charged an indirect tax?

A

When the tax is only paid if a consumer actually buys the product

30
Q

Factors that influence supply - Subsidy.

A
  • Government does this to encourage the supply of certain products, because it believes they are beneficial.
  • Has the opposite affect of tax
31
Q

What is a Subsidy?

A

A payment from the government to encourage a business to increase supply

32
Q

Factors that influence supply - Price of other products.

A
  • Can be known as competitive supply
  • Fall In the price of one good makes business stop supplying that good and move to another good which is more profitable
33
Q

A rise in disposable income will shift the demand curve to the [……..]

A

Right

34
Q

What is Price Elasticity of Demand?

A

Shows how responsive Demand is to a change in price

35
Q

What is meant by elasticity?

A

Where the change in demand that results from a price change is greater than the change in price that caused it.

36
Q

What is meant by Inelastic?

A

Where the change in demand ray results from a price change is less than the change in price that caused it.

37
Q

Demand and Supply curves that are sloping 45 degrees are quite Elastic/Inelastic?

A

Elastic

38
Q

If the supply or demand curve is quite steep does this mean the curve is Elastic or Inelastic?

A

Inelastic

39
Q

[………] Demand curve are said to be elastic

A

Flatter

40
Q

If demand for a product is price inelastic it means that…

A

When price rises the quantity demanded falls but not by a proportional amount.

41
Q

What can a business do if demand for their products is price inelastic?

A

Can put the price of its products up, because there will no be a large fall in demand.

42
Q

What makes a product demand Inelastic?

A

If a business has few substitutes for its product because consumers cannot switch to another product

43
Q

What makes a product elastic?

A

Where there are many alternatives because consumer are able to switch to a substitute if prices rise.

44
Q

If there is a shortage what will producers do?

A

Suppliers will edge the price up to meet equilibrium.

45
Q

For a substitute good what will an Increase of Price for Good A have on demand for Good B?

A

Will cause demand for Good B to increase and demand for Good A to decrease

46
Q

What makes demand elastic or inelastic?

A
  • If a Business has few substitutes for its products then the price of the product rises, demand is inelastic as consumers cannot switch to another product
  • Where there are many alternatives, demand will be elastic as consumers will be able to switch to a substitute if prices rise.
  • Cost of buying the product in proportion to consumers income

Business - Blackwell (5 decks)

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