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AS Business Studies Theme 1 > Demand > Flashcards

Flashcards in Demand Deck (24)
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1
Q

Define DEMAND

A

Demand/effective demand is the amount of a good that consumers are willing and able to buy at a set price at any given time.

2
Q

What are the factors affecting demand?

A
  • Prices
  • Social trends
  • Advertising
  • Season
  • Demographics
  • Availability
  • Consumer incomes
  • Competitors
  • External shocks
3
Q

Define SUBSTITUTES

A

Substitutes are goods that can be bought as an alternative to a good as they perform the same function.

4
Q

Define a COMPLEMENTARY GOOD

A

Complementary goods are goods that are bought together because they are consumed together.

5
Q

Define PRICE ELASTICITY OF DEMAND

A

Price elasticity measures the responsiveness of demand following a change in price.

6
Q

Define a PRICE ELASTIC good

A

A price elastic good is one that experiences a more than proportional change in demand following a price change.

7
Q

Define a PRICE INELASTIC good

A

A price inelastic good is one that experiences a less than proportional change in demand following a price change.

8
Q

What is the PED formula?

A

PED = % change in demand/ % change in price

9
Q

Define UNITARY ELASTICITY

A

Unitary elasticity is when the percentage change in demand equals the percentage change in price. The PED would be -1.

10
Q

How can an elastic or inelastic product be identified by its PED?

A

If the PED is between 1 and infinity, the product is price elastic. If the PED is a decimal, the product is price inelastic.
PEDs will always be negative.

11
Q

What does a steep demand curve imply?

A

A product that is price inelastic.

12
Q

What does a shallow demand curve imply?

A

A product that is price elastic.

13
Q

What are the factors that influence PED?

A
  • Is the product a luxury or necessity?
  • Possible close substitutes?
  • Strength of brand loyalty?
  • The starting price of the product
  • The time period considered - the product may become less price elastic over time.
14
Q

What are the advantages of PED data?

A
  • Predicts the impact of a change in demand on a change in revenue. Asks if a price change is a good idea.
  • Predicts the change in demand following a price change.
15
Q

What are the disadvantages of PED data?

A
  • Predictions are often based on past data which may be out of date and a inaccurate prediction of the future: competitor behaviour may have changed, consumer tastes and preferences may have changed.
  • PED changes over different price ranges.
16
Q

Define INCOME ELASTICITY OF DEMAND

A

Income elasticity of demand measures the responsiveness of demand following a change in consumer income.

17
Q

What is the formula for YED?

A

YED = % change in demand/ %change in income

18
Q

Define a NORMAL GOOD

A

A normal good is a good for which an increase in income leads to an increase in demand.

19
Q

Define an INFERIOR GOOD

A

An inferior good is a good for which an increase in income leads to a decrease in demand.

20
Q

What factors influence the YED?

A
  • Is the good normal or inferior?
  • Is the good a necessity or a luxury?
  • What is the price of the product?
21
Q

How can businesses use YED data?

A
  • Allows them to predict the change in demand forecast if the economy changes.
  • Helps to manage the business’ brand and plan the product portfolio.
22
Q

Define SOCIAL TRENDS

A

Social trends are changes to the characteristics and attitudes of society over time.

23
Q

Define EXTERNAL SHOCKS

A

External shocks are unexpected events that are outside the business’ control but have a direct impact on the level of demand or their ability to supply.

24
Q

Define MARKET CLEARING PRICE

A

The market clearing price is the price at which demand is equal to supply.