theme 1 part 2 Flashcards
before making decisions what do firms do
make assumptions about why consumers use their brands
what do consumers want from brands
maximum satisfaction (utility)
what do firms aim to do
firms aim to make as much profit as possible
what is profit
the total revenue a firm recives from selling its product minus the total cost of producing it
what do we assume about consumers
that they have rational behaviour
why do we assume consumers have rational behaviour
so we can use models to make assumptions about what customers want
what is demand
the quantity of a good or service that consumers are willing to buy at any given price in a given period of time
what factors influence demand
the price of the good
the price of other goods
your income
preferences
how does the price of the good influence demand
it affects the quantity of it that you chose to buy
how does the price of other goods influence demand
if your product is more expensive demand may decrease
how does your income influence demand
will determine how much of the good you can afford to purchase
what are preferences when referring to influencing demand
an other factors that influence demand are classified as this
what does a customer acting rationally mean
they take the best decisions to make the best result possible
what is marginal utility
the additional utility gained from consuming an extra unit of good
what is market demand
the total quantity of a good or a service that potential buyers are willing to and able to buy at any given time
what happens to marginal utility as you consume more of a product
it is likely to decline
what is diminishing marginal utility (DMU)
the situation where an individual gains less additional utility from consuming a product the more of it that is consumed.
what is the law of demand
a law that stated that there us an inverse relationship between quantity demanded and the price of a good or service (ceteris paribus applied)
is a demand curve ever a straight line
yes
is the demand curve always a straight line
no
what affects the shape of a demand curve
how consumers react at different prices
what happens when the price of a product is changed
there is a movement along the demand curve
demand curves are drawn under what assumption
ceteris paribus is applied
what is on the vertical (y) axis of a demand curve
price (£)
what is on the horizontal (x) axis of a demand curve
quantity (Q)
what would an increase in demand look like on a demand graph
a shift to the right - a factor changes that influenced demand
what would a decrease in demand look like on a demand graph
a shift to the left - a factor changes that influenced demand
what would an extension of demand look like on a demand graph
a price fall causing movement down the curve and so there is increased demand
what would a contraction of demand look like on a demand graph
a price increase causing movement up the curve and so there is decreased demand.
what is the definition of demand
a consumers desire to buy goods and services at a specific time and price
what is the definition of market
a structure that allows firms and consumers to exchange goods and services
what is extension
when the price decreases so there is increase demand
what is contraction
when the price increases so there is decreased demand
