The Market Flashcards
Topics 4-8
What is demand?
Demand is the amount of a product that consumers are willing and able to purchase at any given price.
What does a demand curve show?
A demand curve shows the quantity of a good or service that will be demanded at any given price. They slope downwards from left to right.
Many things affect the rate of demand, such as the price of __________ or compliments. Also, if consumer __________ are high, demand will be _____ (sometimes). Consumer _________ also affect trends in demand. Businesses will try to influence demand via ___________ and branding of their products.
substitutes
incomes
high
prefrences
advertising
What demographic factors could affect rates of demand and why?
Age, gender and geographical distribution of the population affect rates of demand because, for example, if there are more babies, there will be higher demand for products such as nappies.
What are some external shocks (factors beyond control) which could affect rates of demand?
Some external shocks which can affect demand are competitors, the government, the economic climate and social and environmental factors, such as seasonal products which only sell well in certain months.
What is supply?
Supply is the amount of a product which suppliers will offer to the market at a given price. The higher the price of a particular goods, the more that will be offered to the market.
What does a supply curve show?
A suplly curve shows the quantity of a good or service that will be supplied at any given price. It slopes upwards from left to right.
Factors contributing to a change in supply
1= P_____
2= C_____
3= New ____________
4= Availability of ____________
5= T______ and government _________
1= Prices
2= Costs
3= New technologies
4= Availability of resources
5= Taxes and government subsidies
How does price impact changes in supply?
Suppliers are more willing to provide a market with a product if they are likely to make a profit. This is affected by changes to the cost of production and the availability of resources.
What are some external shocks (factors beyond control) which could affect rates of supply?
1= World events (think Russia/Ukraine)
2= Weather events (flooding/droughts)
3= The government (policies/taxes)
4= Price of related goods (substitutes)
What is the equilibrium price?
The equilibrium price is where supply and demand are equal.
Disequilibrium in the market is when the price is not set at appoint where supply and demand are _____. It occurs when there is excess ______ and price is charged ______ the equilibrium price, or when there is excess ______ and price is charged ______ the equilibrium price.
equal
demand
below
supply
above
What is the definition of price elasticity of demand?
Price elasticity of demand is a measure of the responsiveness of demand to a change in price. Demand for inelastic products does not change with price, but demand for elastic products does change with price.
What is the formula for price elasticity of demand?
PED = % change in demand / % change in price
1= PED tends to fall over a longer _____. This is because customers are more likely to go to _________.
2= There is a high price elasticity in very __________ markets and for very similar products.
3= The stronger a ______, the less likely it is that a customer will move to a _______.
4= Proportion of _______ spent on a product - Cheap products tend to be inelastic as changes tend to mean a lot less to the ________.
time
rivals
competitive
brand
rival
income
customer
Values of PED / YED
0 means it is perfectly _________
Less than 1 (<1) means the product is _________
1 means it is perfectly _________
More than 1 (>1) means the product is ________
The +/- sign DOES/DOESN’T matter for PED / YED
inelastic
inelastic
elastic
elastic
DOESN’T MATTER FOR PED
DOES MATTER FOR YED
What is the definition of income elasticity of demand
Income elasticity of demand is a measure of the responsiveness of demand to a change in price. If the change in demand is proportionately greater than the change in income, then it would be considered income elastic.
What is the formula for income elasticity of demand
YED = % change in demand / % change in income
What does the +/- sign in YED signify?
Positive figures are for normal goods, wheras negative values show that it is an inferior good, where demand actually FALLS when incomes RISE.
What is an example of two supermarkets, one which typically sells normal goods, and one typically selling inferior goods.
Normal goods -> Marks & Spencers, Waitrose etc.
Inferior goods -> ALDI, LIDL etc.
The main factor affecting income elasticity is whether a good is a _____________ or a _________. Demand for necessities will be income ___________ because customers _______ to buy them. By contrast, luxury goods are only bought if a consumer can __________ them; they are _________________. Demand for these products are income _________.
necessity
luxury
inelastic
need
afford
discretionary
elastic
What level of income elasticity is best in the eyes of a business?
Businesses will prefer products with low income elasticity as they tend to be more stable during periods of economic trouble.
Why is knowing the income elasticty of products valuable to businesses?
Businesses will want to be able respond to changes in income better. It aids decision making and allows risk to be reduced.
