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Business > Supply and demand > Flashcards

Supply and demand Flashcards

1
Q

What is demand?

A

The amount of a good that consumers are willing and able to buy at a given price

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2
Q

What factors can influence demand?

A

-Income
-Population
-Seasonality

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3
Q

What is the economic theory?

A

Price will impact the demand of a product, e.g higher prices will lower the demand

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4
Q

What is a normal good?

A

An everyday good

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5
Q

What is an inferior good?

A

A cheaper alternative, demand will fall as income rises

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6
Q

What are luxury goods?

A

An expensive good, not an everyday good, demand will increase by a large amount if income rises

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7
Q

What are substitute goods?

A

An alternative good if the normal good isn’t available

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8
Q

What are complimentary goods?

A

A good complimenting another good, purchases are linked so if demand changes it will effect both

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9
Q

What are consumer tastes?

A

Changing consumer tastes will impact demand, must be aware of changing tastes and seasonality

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10
Q

What is supply?

A

The quantity of a good or service that a producer is willing to provide to the market place at different times, higher prices mean a larger quantity supplied

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11
Q

Why does the supply curve slope upwards?

A

-Profit motive = the market place rises and becomes more profitable for businesses to increase their output
-Production and costs = when output expands, production costs rise and businesses up the price to cover the costs
-New entrants coming into the market = higher prices may encourage new businesses to enter the market which leads to an increase in supply

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12
Q

What does outward shift mean?

A

A fall in production costs

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13
Q

What does inward shift mean?

A

Quantities are made more expensive to produce

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14
Q

Factors which may shift the supply curve:

A

-Change in technology
-Number of sellers
-Government taxes

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15
Q

What is market equilibrium?

A

Point where the demand and supply line cross, it is the price charged to customers

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16
Q

Explaining demand:

A

Buyers have a higher demand if there is a lower price but sellers have a higher demand at a higher price

17
Q

Explaining supply:

A

Amount of stock a business makes and sells, higher price means a higher supply and a lower price means a lower supply

18
Q

What is a customer?

A

Someone buying the product

19
Q

What is a consumer?

A

Someone using the product

20
Q

What is price elasticity of demand?

A

Measures how responsive demand is to changes in price

21
Q

What is the formula for PED?

A

% change in quantity / % change in price

22
Q

What is elastic demand?

A

When the % change in demand is higher than the % change in price, the amount people buy is sensitive to change
-They are goods people already want to buy

23
Q

What are the characteristics of elastic demand?

A

-Many substitutes
-Luxury products
-Large income
-Customers have a long time to decide

24
Q

What is inelastic demand?

A

When the % change in demand is less than the % change in price, people will continue to buy it even if the price increases e.g milk

25
Q

What are the characteristics of inelastic demand?

A

-Fewer substitutes
-Necessities
-Smaller income
-People require the product now

26
Q

With inelastic demand when is revenue higher?

A

When price increases total revenue increases because consumers will continue to buy the product

27
Q

With elastic demand when is revenue higher?

A

When price falls the total revenue increases

28
Q

Why do businesses use elasticity?

A

-Helps them to determine price
-Helps them to see the impact price will have on demand

29
Q

How does brand loyalty affect elasticity?

A

People will pay the higher price if they’re loyal to the brand, an inelastic demand

30
Q

How does product differentiation affect elasticity?

A

Will become inelastic as they stand out from other businesses, people will pay a higher price if they can’t get it elsewhere

31
Q

What is income elasticity? (YED)

A

Measures the relationship between a change in quantity demanded and a change in real income

32
Q

What is the YED calculation?

A

% change in demand / % change in income

33
Q

What is negative elasticity?

A

Higher income = fall in sales
-an inferior good

34
Q

What is positive elasticity?

A

Higher income = more sales
-a normal good

35
Q

What significance does income elasticity have on businesses?

A

-Retailers use it to plan sales and sell their own brand goods during a recession
-Producing few inferior goods may protect a business from a recession
-Consumer income rises, demand for normal goods increases

36
Q

Factors influencing income elasticity?

A

-Type of product, luxury or inferior (luxuries have a higher YED)
-Consumer perceptions, businesses use promotional techniques to encourage customers to spend extra income on their goods
-New products, USP will become income elastic

Business (12 decks)

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