Theme 1 Knowledge to Date Flashcards
Identify 3 factors that affect supply in a market
changes in the costs of production, introduction of new technology, indirect taxes, government subsidies, external shocks
Identify 5 factors that affect demand
changes in the prices of substitutes and complementary goods, changes in consumer incomes, fashions, tastes and preferences, advertising and branding, demographics, external shocks, seasonality
Explain how online selling can increase a products price elasticity
Customers can more easily compare the prices of different products, therefore are likely to switch to a cheaper alternative if prices increase
Explain why adopting flexible working practices may be beneficial for a price elastic product
By using flexible working practices a business can avoid paying employees when they aren’t needed. This reduces overall costs. Therefore the business can reduce their prices which will lead to a substantial increase in demand for a price elastic market
Identify the factors that influence price elasticity of demand
The availability of substitutes, luxury vs necessity, competition, degree of differentiation, habit
Explain the significance of income elasticity of demand to a business
It is important for a business to determine whether they are a luxury, normal or inferior good. This allows them to predict the impact that chnages in income wil have on their demand
Identify 3 factors that influence income elasticity of demand
Whether the product is luxury or necessity, the target market of the product, the availability of cheaper substitutes
Explain the difference between income and price elasticity of demand
YED refers to the responsiveness of demand to changes in income whereas PED refers to changes in price. YED and PED are not necessarily interlinked ie. A product may be price elastic but income inelastic or vice versa
Explain the reasons why a business may only use quantitative data
Quantitative data is much quicker, cheaper and easier to analyse than qualitative data
Why is it easier to predict sales for normal goods rather than luxury goods?
Because normal goods are not very responsive to changes in income, therefore the change in demand wil be much smaller
Explain why it is important for a business to have high labour productivity in a price elastic market
High labour productivity allows the business to spread the cost of labour over more units, reducing the cost per unit. This allows them to reduce their selling price, which will greatly increase demand in a price elastic market
Give a line of analysis that explains the impact that the change in inflation will have on inferior goods
A rise in inflation will increase the average price of goods and services. This means that, assuming wages do not rise at the same rate as inflation, customers will be able to afford to purchase less. This reduces the amount of disposable income that people have, therefore increasing the demand for inferior goods
Why does a shortage of supply in an industry usually lead to a price rise?
Because customers are competing to purchase the good in question ie. There is not enough to go around. Therefore the seller can increase the price until the amount customers are willing and able to buy is the amount able to be supplied
What causes changes in income?
Inflation, Unemployment, The Business Cycle, Interest Rates, Tax
Explain how elements of the design mix can be changed to reflect social trends
By focusing more on ethical sourcing (could change taste of food if this is done as it may lead to different ingredients being used) Change in taste would be a change in aesthetics
