Theme 1.2 - Market Flashcards
What does the demand curve show
The relationship of quantity wanted in relation to price
How else can the demand change even when there’s no change in price (3examples)
Non-price factors
- Seasonality
- Substitutes
- Advertising & Branding
What is supply
The quantity a business are willing to sell at a given price in a given time
(At higher prices, businesses are incentivised to supply more of the product)
How do supply and demand interact with each other
Where the demand is higher from consumers businesses will supply more products
What is it called where demand equals supply
Equilibrium
What is PED
Where there is an increase in price, there will be a fall in quantity demanded and vice versa
What does PED help us calculate
How responsive change will be in quantity demanded where price increases/decreases
Information about PED value
- always negative
How do we interpret PED values
If >1 , product is elastic and more responsive to change
If <1 , product is inelastic and less responsive to change e.g necessities
What three factors affect PED
- Necessity or luxury
- Brand loyalty
- Substitutes
Why is PED significant for Bs
Helps adjust their pricing strategy to maximise their revenue
What does YED show
Shows how income will changed the quantity demanded
How to interpret YED values
Can be positive or negative
- Postive, normal good, where >1 luxury, 0-1 necessity <0 inferior
For luxury goods is demand responsive (YED) >1
Yes, it is demand will fall and rise with income
For necessities is demand responsive (YED) >1
No, its not very responsive (food,eggs and milk)
For inferior goods is demand responsive (YED) <0
Yes, but demand rises as income falls and drops and incomes increase (e.g public transport)
Why is YED significant for Bs
Can help them plan their production and products
