Introducing the market - Theme 1.3

Question 1

What is the definitions of Effective demand, Individual demand and Market demand

Answer 1

Effective Demand: The quantity that consumers are willing to buy at the current market price.
Individual Demand: The demand of an individual or firm.
Market Demand: The sum of all individual demands in the market.

Question 2

How do prices affect the demand/supply curve?

Answer 2

Prices cause movements along the demand and supply curves. Prices do not cause shifts in the demand and supply curves.

Question 3

What does each letter in the PIRATES mnemonic stand for? - Non Price factors that can shift demand

Answer 3

Population
Income
Related Goods
Advertising
Tastes and Fashions
Expectations
Seasons

Question 4

What are the 3 different types of supply?

Answer 4

1. Joint supply 2. Composite supply 3. Competitive supply

Question 5

What are 3 reasons why the supply curve is upward sloping?

Answer 5

1. If price increases, it’s more profitable for firms to supply the good 2. High prices encourage new firms to enter the market
2. Larger output increases costs, which are passed onto consumers in the form of higher prices

Question 6

What does each letter in the PINTSWC mnemonic stand for? - Non-Price Factors that can shift supply

Answer 6

Productivity
Indirect Taxes
Number of Firms
Technology
Subsidies
Weather
Costs of Production - Transport, Labour, Oil, Raw materials, Regulation, Utilities

Question 7

How will the exchange rates affect the level of supply?

Answer 7

A decrease in the exchange rate boosts the costs of imports (raw materials), which increase the cost of production for firms, thus shifting the supply curve to the left.

Question 8

What are the cons of using the supply and demand model to explain real-world problems?

Answer 8

X They only show certain markets
X Assume price increases means firms will supply more
X Assume perfect information
X Assume perfectly competitive markets

Question 9

What phrase describes the mechanism that determines market price?

Answer 9

The ‘invisible hand of the market’

Question 10

What are the 3 different functions of the price mechanism?

Answer 10

1. Rationing
2. Incentive
3. Signalling

Question 11

What is the difference between a mass market and niche market?

Answer 11

A mass market is the largest group of consumers for a product. A niche market is a smaller market, focused on a specific product.

Question 12

Why are niche markets generally better at allocating resources?

Answer 12

As niche markets target the consumers directly, rather than generally, they are closer to the consumer and therefore have a better idea of who needs what goods.

Question 13

Describe the difference between primary and secondary research.

Answer 13

Primary research is carried out directly (e.g. surveys), whereas secondary research is carried out via a third-party (e.g. governments).

Question 14

Evaluate the use of primary research over secondary research.

Answer 14

Primary research is expensive but produces more specific findings than secondary research, which may not be as useful.

Question 15

What is the definition of market research?

Answer 15

The collection of data in order to learn about the needs and wants of consumers.

Question 16

What is a disadvantage to using samples to analyse the market?

Answer 16

The sample used may be biased, and therefore give invalid results.

Question 17

What is market segmentation?

Answer 17

This is when the market is divided into categories of consumers based on their characteristics, needs, etc.

Question 18

How could market segmentation benefit firms?

Answer 18

By categorising consumers based on their needs/wants, firms can better target their goods to fulfill these specific needs.

Question 19

How does a market map work?

Answer 19

It illustrates all the positions a product can take based upon two dimensions which are significant for consumers. It then identifies which existing products meet which consumer needs, thus identifying gaps for new market participants to fill.

Question 20

Give examples of dimensions used in market mapping

Answer 20

High vs. low price
High vs. low volume
Heavy vs. light
Good vs. lesser quality

Question 21

When does a firm have a competitive advantage over other market participants?

Answer 21

This occurs when the firm in questions produces better products than its competitors in the same market.

Question 22

How can a firm gain a competitive advantage?

Answer 22

It can use price, quality, cost or a niche market to give itself a unique features that makes it stand out from its competitors in the same market.

Question 23

What is product differentiation?

Answer 23

The act of distinguishing one product from another.

Question 24

How can value be added to products and services?

Answer 24

Value can be added to a product using a brand, quality, good service, unique features and convenience for the customer

Question 25

How do firms in a perfectly competitive market determine the prices of their goods and services?

Answer 25

Firms must take the equilibrium price of the market, where supply = demand. N.b: these types are firms are price-takers.

Question 26

Describe the difference between stable market and dynamic markets

Answer 26

A stable market rarely changes the prices of goods, whereas dynamic market prices are constantly changing.