the amount that a business is willing and able to supply
8 of 25
What factors effect supply?
- changes in costs of production
- new technology
- indirect taxes
- government subsidies
- external shocks
9 of 25
How will introduction of new technology affect supply?
increase in supply due to lower production costs
10 of 25
What are commodity markets?
markets for undifferentiated products, usually raw materials like gold or crude oil.
11 of 25
How is price determined in commodity markets?
interaction of supply and demand
- if demand is higher than supply = price rises = demand falls back to level
- if supply is higher than demand = price falls = stimulating demand
12 of 25
What is equilibrium?
situation in a market where supply and demand are balanced
13 of 25
What happens if the demand curve moves to the right?
price will move up
14 of 25
What happens if the supply curve moves to the left?
price moves up
15 of 25
How do you calculate PED?
% change in demand / % change in price
16 of 25
What does it mean if price elasticity is between 0 and -1?
- product is inelastic
- price changes have smaller effect on demand
17 of 25
What does it mean if price elasticity is a negative number greater than 1?
- price elastic
- price changes have larger effect on demand
18 of 25
What are the factors influencing price elasticity?
- degree of product differentiation
- availability of direct substitutes
- branding + loyalty
19 of 25
Why is price elasticity useful?
- forecasting sales, impact of future price changes
- help decide best pricing strategy to increase revenue
20 of 25
How do you calculate income elasticity of demand?
% change in demand / % change in real incomes
21 of 25
What are the 3 categories products can be put in according to their income elasticity?
- inferior goods - negative
- normal goods - positive income between 0 and 1
- luxury goods - positive income greater than 1
22 of 25
What is the difference between a necessity and an indulgence?
Indulgences are things we can live without but treat ourselves to
Necessities are more basic items
Comments
No comments have yet been made