Market Influences On Business Flashcards
Illustrates the maximum quitting of a good that consumers are willing and able to purchase at each and every price
Demand curve
Dictated by price - the quantity of a good individuals are willing and able to purchase t each and every price
Quantity demanded
Change in the amount of a good demanded resulting solely from the change in price
Change in quantity demanded (slide along the demand curve)
Change in the amount of a good demanded resulting from a change in something other than the price of the good
Change in demand (shift of the demand curve)
Using the substitution effect, as the price of coke increases what would happen to cokes demand and Pepsis demand?
Cokes demand would slide down, and pepsis demand would shift right
What factors would shift the demand curve (shifts occur due to things other than price)
Change in wealth (if wealth goes up, demand goes up)
Changes in price of related goods (if price of related goods go up, demand for current good go up)
Changes in consumer income (if income goes up, demand goes up)
Changes in consumer preferences
Changes in consumer expectations (if price in future expected to go up, demand now goes up)
Changes in number of buyers (if buyers go up, demand goes up)
What’s the difference between a change in quantity demanded vs a change in demand?
A change in quantity demand = a slide on the price/quantity graph
A change in demand = a shift on the price/quantity graph because price (the y axis) does not effect demand
How are demand and supply sloped on the price/quantity graph?
Demand = negatively sloped Supple = positively sloped
Illustrates the maximum quantity of a good that sellers are willing and no able to produce at each and every price
Supply curve
The amount of a good that producers are willing and able to produce at each and ever price
Quantity supplied
Change in the amount producers are willing and able to produce resulting solely from a change in price
Change in quantity supplied (slide along the supply curve)
Change in the amount of a good supplied resulting from a change in something other than price of the good
Change in supply (shift of the supply curve)
Factors that shift the supply curve are:
Changes in price expectations (price goes down, supply goes up)
Changes in production costs (price goes down, supply goes up)
Changes in the price or demand for other goods we sell
Change in subsidies or taxes (taxes go down, supply goes up)
Changes in production technology
What’s the difference between the change in quantity supplied and the change in supply on the price/quantity graph?
Change in quantity supplied = as price goes up, quantity supplied slides up
Change in supply = as other factors increase, supply shifts right
What effect does an increase or decrease in demand have on the market equilibrium?
If increase in demand - price increases, quantity increases
If decrease in demand - price decreases, quantity decreases
What effects does an increase or decrease in supply have on the market equilibrium?
Increase in supply - price decreases, quantity increases
Decrease in supply - price increases, quantity decreases
If demand increases and supply increases what happens to equilibrium quantity and equilibrium price?
Quantity increases, price has no change
When demand increases and supply decreases, what happen to equilibrium quantity and price?
Quantity is unchanged, and price increases
When demand decreases and supply decreases, what happens to equilibrium quantity and price?
Quantity decreases and price has no change
When demand decreases and supply increases, what happens to equilibrium quantity and price?
Quantity is unchanged and price decreases
The maximum price that is established below the equilibrium price which causes shortages to develop because quantity demand is greater than quantity supply
Price ceilings
The minimum price set above the equilibrium price which causes surpluses to develop because quantity demand is less than quantity supply:
Price floors
Formula for price elasticity of demand:
% change in quantity demanded / % change in price
The absolute price elasticity of demand is less than 1.0 is:
Price inelasticity
The absolute price elasticity of demand is greater than 1.0 is:
Price elasticity
The absolute price elasticity of demand is equal to exactly 1 is:
Unit elasticity
Price elastic on deman - what is the impact of price increase or decrease on total revenue?
Increase = total revenues decrease Decrease = total revenues increase
Price inelastic of demand - what is the impact of price increase and decrease on total revenue?
Increase = total revenue increases Decrease = total revenue decreaes
Price unit elastic of demand - what is the impact of price increase or decrease on total revenues?
No effect
Formula for price elasticity of supply:
% change in quantity supplied /% change in price
Formula for cross elasticity of demand =
% change in number of units of X demanded / % change in price of Y
Formula for income elasticity of demand =
% change in number of units of X demanded / % change in income
If the cross elasticity of demand/supply returns a positive number, the two goods are what? If a negative number, what?
Positive = substitutes Negative = complementary
If the income elasticity of demand/supply formula returns a positive number, what does that mean of the product? If returns a negative number, what does that mean?
Positive = a normal good Negative = an inferior good
Assists in developing appropriate strategic plans
SWOT Analysis (strengths, weaknesses, opportunities, and threats)
Internal factors that affect strategy are sources of strengths and weaknesses like:
Innovation
Competence of managers
Core competencies (why we are successful)
Marketing effectiveness
External factors that affect the overall industry’s opportunities and threats are:
Economy Regulations and laws Demographics of population Technology advances Social and political values
External factors that affect the firm’s opportunities or threats:
Barriers to market entry
Competitiveness
Substitute products
Bargaining power of customers and vendors
Porters five forces include:
Barriers to entry Market competitiveness Existence of substitute products Bargaining power of the customers Bargaining power of the vendors
Two types of competitive strategies:
Cost leadership
Differentiation
Firm is able to produce and sell its product for less than its rivals. The firm can build market share by reducing the selling price to below the competitor’s, OR match the selling price of rivals because their costs are lower:
Cost leadership
Buyers are better off because the customer perceives the firms product to be superior in some way to those of its rivals. The firm can build its market share and/or increase prices:
Differentiation
Main goal of cost leadership strategy is to:
Decrease selling price and increase volume
Main goal of differentiation strategy is to:
Differentiate their product and increase selling price
Combines the cost leadership strategy with the differentiation strategy:
Best cost strategy
