Theme 1 - The market Flashcards
What is supply and demand ?
Supply is the quantity of a product that suppliers are willing and able to supply to a market at given price at a particular time.
Effective demand is the quantity of a product that consumers want and are able to buy at a given price and particular time
What is a demand curve?
The demand curve
- usually slopes downwards
-it shows as the price of a product increases the demand decreases - at a higher price fewer buyers a willing to pay the price
What is a supply curve?
The supply curve
-usually slopes upwards
- shows the relationship between the price and quantity supplied
- the higher the price charged for a product the higher the higher the quantity supplied
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What is the equilibrium price?
Equilibrium price is when the amount demanded matches the amount supplied
when the quantity that buyers demand is the same as the quantity the sellers wish to supply
What is a surplus?
A surplus occurs when the price increases
if the price of a product was increased this would cause movement to the right along its supply curve and left on the demand curve
This would mean the quantity demanded would be less than the quantity supplieds so would be excess supply a surplus
What is a shortage?
A shortage occurs when a price decreases
If the price of a product was decreased this would result in a movement to the left along its supply curve and right along the demand curve so there would be excess demand so a shortage in the market
What factors influence demand?
Substitutes- the demand for a particular brand or product type can be affected by price change of a substitute product
Complementary products-these are products which are used together e.g printers and ink price of printers increase demand for ink would decrease
Consumer income- a higher income would lead to an increase in demand for luxury products
Fashion, consumer tastes and consumer preferences- demand relies on what consumers want
Advertising and Branding- aims to increase demand for a product
Demographics- changes in population would lead to changes in demand
Seasonal changes- demand for goods and services can change as the season changes
External shocks- The threat of war, diseases and extreme weather
What factors influence supply?
Cost of productipm- if the cost of production increases then the profit made from selling price will decrease, fall in supply
Indirect taxes- these are taxes on goods and services gov can influence supply by changing taxation
Subsidies- a subsidy is money given to a business by government to help it with costs and encourage more supply.
New technology- can lead to more efficient production techniques and therefore cost savings. lower costs increase supply
Weather conditions- a severe change in weather can affect the supply of goods and services
External shocks- this includes shocks such as wars which can affect supply.
What causes supply and demand diagrams to shift?
Changes in the market can cause the curve to shift and move left or right
What happens to the
demand curve when theres a rise in demand?
The curve shifts in the right however the price needs to rise to clear the market of excess demand
A new equilibrium quanitity is meant at a higher price than before
What happens fall in demand ?
The curve shifts to th left and the price needs to fall to clear the market of excess supply as there is a surplus
What happens if theres a rise in supply?
The curve shifts ri ther right and the price needs to fall to clear excess supply
What happens if theres a fall in supply?
The curve shifts to the left and the price needs to rise ro cleae the excess demand as theres a shortage
What is Price elasticity of demand?
PED- shows how demand changes with price elasticity and how much the price changes affects the demand
What is the PED formula?
PED = %change in quantity demanded/ % change in price
