Theme 1.2 Market Flashcards
Formula for Price Elasticity?
% change in demand
% change in price
Demand?
the amount that society is willing and able to buy at a set price at any given point in time
What is the demand curve?
a straight line on a curve that shows us how many quantities will be sold per price
If price decreases, QD increases
5 factors leading to a change in demand?
Changes in price of substitutes/complementary goods
Change in consumer incomes
Seasonality
Advertising
Fashion, tastes and preferences
What is a substitute?
A product that acts as an alternative, creating competition e.g. Samsung and Apple
What is a complementary good?
A product that is bought alongside a good or service e.g. chips with fish
Is the relationship between price and quantity demanded positive or inverse?
inverse
5 factors that lead to changes in supply?
Change in production cost - wages, raw materials, energy prices
Introduction of new technology - Cheaper in long run as less labour needed, cheaper per unit
Indirect taxes - Value added taxes, if taxes are increased it makes cost per unit more expensive
External Shocks - Unexpected events out of businesses control but have direct impact on level of supply (natural disasters, inflation, COVID)
Government subsidies - Finance provided by the government to encourage suppliers to produce making it cheaper for them
What is supply?
the amount of a good or service that produces are willing and able to sell at any given price
What does the supply curve indicate?
If suppliers are paid more, they will offer higher quantity supply
What is a normal good?
One where if consumer income increases, demand will increase and visa versa (has a + sign)
What is a subsidy and why is it good for the business?
Finance provided by government to encourage suppliers to produce —> cheaper to produce a product
What is an external shock?
Unexpected events out of the businesses control but have a direct impact on level of supply e.g. natural disasters, inflation
What is an indirect tax?
value added taxes or duties that makes the cost per unit more expensive
Price inelastic?
that if the price changes demand will not significantly change (less than one)
5 factors influencing PED
availability of substitutes
Price of competitor goods
Branding
Income
Nature of the good (luxury or necessity)
Income elasticity of demand (YED)?
a measure of the responsiveness of demand to a change in income
Inferior goods?
when income increases, the demand for a product decreases and visa versa (has a - sign)
Formula for YED?
% change in demand/ % change in income
YED can be negative or positive
3 Factors influencing YED of a product?
Whether the good is a luxury or necessity
Level of income of consumer (poorer consumers spend their income of necessities)
As income increases, they’re more likely to spend money on luxuries
What is income inelastic?
below 1, and the demand will not change much
PED?
a measure of responsiveness to of a good’s demand to a change in price
Market Segmentation?
A process which helps businesses to divide up the market of potential customers into groups (segments)
e.g. Location, Demographics(age, gender, religion, sexual orientation etc), Behaviour, Lifestyle and Income.
2 examples of demographic segmentation?
- Mcdonald’s - the happy meal
- Gymshark - target 18-25 year old
