Theme 1 Business Flashcards
Demand def
the amount of a good consumers are willing and able to buy at a given price
factors that can lead to a change in demand
change in price of complementary or substitute goods, demographics, seasonality, external shocks
Supply def
the quantity of a good or service that a producer is willing and able to sell at a given price , over a given period of time
Causes of changes in supply
costs of production, external shocks, new tech, taxation and subsidies
Market Equilibrium def
means a state of equality or balance between market demand and market supply
price elasticity of demand def
PED relates to how demand responds to change in price
PED formula
% change in quantity demanded / % change in price
What happens if demand is elastic?
There is a big response. C consumers will buy lots more or lots less of the product/ service being sold.
e.g Chanel perfume if price doubled likely to have lower demand.
What happens if demand is inelastic?
There is a small response. This means sales will not be significantly affected by the change in price.
e.g petrol prices change demand won’t be affected so much as petrol is a necessity.
When calculating PED how do you know if a product is elastic or inelastic?
calculation greater than 1. The demand is elastic.
calculation below 1 the demand is inelastic.
Factors influencing PED?
Luxury vs essential
proportion of income being spent
Brand
Habbit forming e.g cigarettes
Number of substitutes available e.g town has more than 1 cinema a price change may push them to the other cinemas
Time- what will happen to demand for petrol cars when electric cars come out?
Income elasticity of demand def
relates to a change in demand following a change in income
e.g if income decreases demand for value foods would increase
Formula for YED
% change in Quantity Demanded/
% Change in Income
