The Market 1.2 Flashcards
Demand
Level of interest consumers have in buying a product
Factors affecting demand
- price
- prices of other goods
- consumer incomes
- advertising and branding
- external shocks + seasonal factors
Name two demand risks
- undiversified demand
- overtrading
What is a complementary good?
Bought in conjunction with each other (car and petrol)
Inferior goods
Sales rise when consumers are financially struggling
Luxury goods?
Sales rise better when people are financially better
Normal goods
Sales move in line with consumer incomes
Seasonal variation?
Change in value of variable related to seasons
Substitutes
Products or services in competition with each other
What is supply?
Supply is the quantity of a product that producers are able to deliver within a certain time
Factors affecting supply?
- new technology
- indirect taxes
- subsidies
- external shocks
- changes in cost of production
What is a supply chain?
The path from suppliers of raw materials through production to customer delivery
Supply curve
Line showing the quantity of goods firms want to supply at different price levels
Equilibrium
Balance between supply and demand - price is stable
Commodity markets?
Undifferentiated products. Every kilo is the same as every other kilo
Demand curve
A line showing the demand for a product at different prices
Market prices
The price of a commodity that has been established by the market
Price elasticity
Measures the extent to which demand changes when the price is changed
Price elasticity formula
% change in quantity demanded
——————————————————
% change in price
Factors affecting PED
- product differentiation
- substitutes nearby
- branding +loyalty
How can you tell if a product is price elastic?
PED above 1
How can you tell if a product is price inelastic?
PED below 1
Why are PED useful?
- sales forecasting
- pricing strategies
Income elasticity?
How demand changes according to consumer incomes
