Markets - 1.2 Flashcards
What is Demand?
The quantity of a product that consumers are able and willing to purchase at various prices over a period of time.
What is the relationship between quantity and price?
As prices fall, consumers will demand more of a product. If prices rise, consumers will demand las. This is known as an and inverse relationship.
What does a Demand Curve look like?
Straight down to the right. \ = like that
How do you get a movement along the demand curve?
Only a change in price will cause a movement along. A movement down the curve is known as an extension in demand
What are Factors affecting demand?
Changes in the prices of substitutes and complements
Scarcity of the product/goods
Changes in consumer incomes
Fashions, tastes and preferences
Advertising and branding
Demographics
External shocks
Seasonality
What are Normal Goods?
Goods for which an increase in income leads to an increase in demand.
What are Inferior Goods?
Goods for which an increase in income leads to a fall in demand.
What is Supply?
Quantity of a product that produces a willing and able to provide a different prices over period of time
What is the relationship between supply and price?
As price increases, supply increases.
How does a supply curve look?
Going up, to the right, / = like this
How can supply be affected?
A change in the cost of production
Introduction of new technology
Indirect taxes
Government subsidies
External shocks: world events, weather,
governments, changes in the price of related
goods
What are Costs of Production?
The total costs incurred by a business to produce a specific quantity of a product or offer a service
What are Subsidies?
Government gives funding to domestic markets so demand increases for them.
What is Equilibrium Price?
The price at which supply is equal to demand.
What is the formula for Sales Revenue?
Price x Quantity
What is Excess Demand?
There is a shortage of goods in the market
What is Excess Supply?
There is a surplus of goods in the market (more supply than demand)
What is Price Elasticity of Demand?
Price Elasticity of Demand is the change in demand as a result of a change in price.
What is the PED formula?
PED= % change in QD/ % change in price
What is meant by Price Elastic?
Where the % change in QD is sensitve to a change in price
What is meant by ‘Price Inelastic’?
Where the % change in QD is insensitive to a change in price
What factors affect PED?
Time
Competition
Branding
What is Income Elasticity of Demand?
Income Elasticity of Demand is the responsiveness of the QD to a change in income.
What is the formula for YED?
% change in QD/ % change in income
