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Business Studies Theme 1 - People > The Market 1.2 > Flashcards

The Market 1.2 Flashcards

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1
Q

What three ways does price effect demand?

A
  1. The higher the price, the more people there are who cannot afford to buy it.
  2. The higher the price, the less good value the item will seem compared with other ways of spending money.
  3. The price tag gives a message about its value, so even if something is value for meant, although lower prices will boost sales, firms must be aware of ruining their image for quality
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2
Q

What are the 8 factors which affect demand? (determinants)

A
  1. Price
  2. Prices of other goods (or substitutes or complementary goods)
  3. Changes in consumer incomes
  4. Fashion, tastes and preferences
  5. Advertising and branding
  6. Demographics
  7. External shocks
  8. Seasonal factors
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3
Q

What are the four types of goods?

A
  1. Normal goods
  2. Luxury goods
  3. Inferior goods
  4. complementary goods
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4
Q

What is a normal good, and what would usually happen with an increase in income?

A

A normal good is one which the demand grows as the economy grows, where demand rises in line with incomes

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5
Q

What is a luxury good, and what would usually happen with a rise in income?

A

Where the demand for a product/ service increases massively when the economy increases, sometimes double what the economy increase is.

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6
Q

What is an inferior good, and what happens when incomes increase?

A

When people are better off, sales for inferior goods fall.

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7
Q

What is demographics? (Generally)

A

It breaks down population by data, for example by age, ethnic group or gender

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8
Q

Give 3 of many potential causes of external shocks:

A
  1. Natural disasters such as flooding or earthquakes
  2. A change in law
  3. An unexpected change of mind by a major customer or supplier
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9
Q

What are two situations a manager should be aware of? (Demand risks)

A
  1. Undiversified demand

2. Overtrading

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10
Q

What is undiversified demand (generally)?

A

Where a business depends on one company for the majority of their sales, which could mean if that buyer suddenly cancelled they would be stuck

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11
Q

What is overtrading (generally)?

A

Sometimes a small business will grow so fast they will struggle to generate enough cash to meet rising bills due to rising production levels, this can lead to a cash flow problem.

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12
Q

Why may managers worry about the pricing decisions made by firms selling complementary goods?

A

Because a price rise by a complementary good can damage the sales of its partner good/ service

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13
Q

What is the definition for a complementary good?

A

These are bought in conjunction with each other, such as eggs and bacon

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14
Q

What is the definition of an inferior good?

A

Ones for which sales fall when people are better off, but rise when consumers are struggling financially

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15
Q

What is the definition for a luxury good?

A

Ones for which sales rise rapidly when people are better off, but may fall rapidly in hard times

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16
Q

What is the definition of a normal good?

A

Ones for which sales move in line with changes in consumer incomes

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17
Q

What is the definition for seasonal variation?

A

Change in the value of a variable that is related to seasons

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18
Q

What is the definition for substitutes?

A

Products or services in competition with each other so customers will substitute one for another

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19
Q

Give 6 factors which could lead to a change in supply: (determinants)

A
  1. Changes in costs of production
  2. Introduction of new technology
  3. Indirect taxes
  4. Government subsidies
  5. External shocks
  6. Physical constraints
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20
Q

What are indirect taxes (generally)?

A

They are taxes levied by the government on goods and services. For example the 20% VAT put on most goods and services

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21
Q

What are government subsidies (generally)?

A

This is where the government wants to promote supply and therefore gives businesses a financial contribution towards supply.

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22
Q

Give some other possible external shocks (2)

A
  1. Market price of a product falling when a business has bought a large supply of it
  2. A natural disaster like a flood or earthquake can disrupt supply lines, causing problems for manufacturers or retailers with low stocks
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23
Q

What does a supply curve show?

A

It shows how supply increases when customers are willing to pay more for the product.

24
Q

Give the definition of market price:

A

The price of a commodity that has been established by the market - that is where supply equals demand

25
Q

Give the definition of supply chain:

A

The whole path from suppliers of raw materials through production and storage on to customer delivery

26
Q

Give the definition of supply curve:

A

A line showing the quantity of goods firms want to supply at different price levels. (The higher the price, the more enthusiastic the supply)

27
Q

What is the definition for commodity markets?

A

These cover undifferentiated products such as rice, oil or gold. The principle is that every kilo is the same as every other kilo, so traders can buy or sell without needing to worry which kilo they are dealing in

28
Q

What is the definition for demand curve?

A

A line showing the demand for a product at different places (the higher the demand the lower the price

29
Q

What is the definition for market price?

A

The price of a commodity that has been established by the demand. That is where supply equals demand

30
Q

How can price elasticity of demand be calculated, what is the formula?

A

% change in quantity demanded/ % change in price

31
Q

Give three determinants of price elasticity of demand:

A
  1. The degree of product differentiation
  2. The availability of substitutes
  3. Branding and brand loyalty
32
Q

What is the degree of product differentiation?

A

This is the extent to which customers view the product as being distinctive from its rivals.

33
Q

What is the availability of substitutes?

A

Whether a product is there in the instant that the customer wants to buy

34
Q

Describe price elastic demand:

A

A product with price elastic demand has a price elasticity above 1. This means that the percentage change in price in demand is greater than the percentage change in price. the higher the price elasticity figure, the more price elastic the demand.

35
Q

Describe price inelastic demand:

A

Products with price inelastic demand have price elasticity’s below 1. This means the percentage change in demand is less than the percentage change in price. So basically price changes have barely any effect on demand.

36
Q

Give two characteristics of a product with price-elastic demand:

A
  1. undifferentiated

2. many competitors

37
Q

Give two characteristics of a product with price- inelastic demand:

A
  1. differentiated

2. few competitors

38
Q

what is the impact of a price rise of a product with price elastic demand in comparison price inelastic demand

A

Sales fall sharply so revenues fall, for a product with price elastic demand. Whereas with a price inelastic product the sales fall, but not by much and so the sales rise.

39
Q

what are the two ways data on a products price elasticity can be used?

A
  1. sales forecasting

2. pricing strategy

40
Q

what is the definition of external constraint:

A

something outside the firms control that can prevent it from achieving its objectives

41
Q

what is the definition for predatory pricing:

A

pricing low with the deliberate intention of driving a competitor out of business

42
Q

price elastic definition:

A

a product with demand that is highly price sensitive, so price elasticity is above 1

43
Q

price inelastic definition:

A

a product with demand that is not very price sensitive, so price elasticity is below 1.

44
Q

what is a real income?

A

The amount an average employee receives before any deduction for tax or pensions. this is their gross income.

45
Q

what is the percentage change of real income calculation:

A

% rise in average earnings - % rise in prices = % change in real incomes

46
Q

what is the calculation for income elasticity of demand:

A

% change in quantity demanded/ % change in real incomes

47
Q

what are the three categories a product can be put into (for income elasticity of demand)

A
  1. a normal good - with positive income elasticity of demand and a YED between 0.1 and 1.5
  2. a luxury good - with very positive income elasticity of demand of more than 1.5
  3. an inferior good - with negative income elasticity of demand
48
Q

Give three factors influencing the income elasticity of demand of a product/ service?

A
  1. whether the product is a necessity of a self indulgence
  2. who buys the product
  3. positive and negative elasticity
49
Q

what are the two purposes data on elasticity can be used for?

A
  1. sales forecasting

2. financial planning

50
Q

definition of negative income elasticity:

A

a product for which sales fall when people are better off (but rise when people are worse off)

51
Q

definition of positive income elasticity:

A

a product for which sales rise when people are better off (but fall in recessions)

52
Q

definition of a recession:

A

two or more quarters of negative economic growth

53
Q

If the supply is bigger than the demand what happens?

A

There is a surplus

54
Q

If the demand is bigger than the supply,what happens?

A

there is a shortage

55
Q

what are three pros of market equilibrium?

A
  1. profitability
  2. no waste
  3. customer satisfaction
56
Q

what are 3 factors influencing price elasticity of demand?

A
  1. level of brand loyalty
  2. level of need
  3. number of substitutes

Business Studies Theme 1 - People (6 decks)

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