1.2

• Demand

  Is concerned with customers who are able and are willing to buy
• The market demand curve shows how much people will want to buy if there were no supply constraints, such as stock shortages or production problems.
• Supply

  Is concerned with suppliers and the amount of products that they will supply to a market at a given price
• Market equilibrium/Market clearing price

  Is where the wishes of customers meet the wishes of producers
• Changes in the costs of production are a factor affecting supply.
• Introduction of new technology is a factor affecting supply.
• Indirect taxes such as VAT are factors affecting supply.
• Government subsidies are factors affecting supply.
• External shocks are factors affecting supply.
• Price elasticity of demand (PED) is a measure of how responsive consumers are to changes in prices
• Prices of substitutes are a factor that affects demand.
• Prices of complements are a factor that affects demand.
• Changes in customer income are a factor that affects demand.
• Fashions, tastes and preferences are a factor that affects demand.
• Advertising and branding are a factor that affects demand.
• Demographics are a factor that affects demand.
• External shocks are a factor that affects demand.
• Seasons are a factor that affects demand.
• Income elasticity of demand

  Income elasticity of demand is defined as the responsiveness of demand to a change in income

  IED= % change in quantity demanded/%change in income
• Price elasticity of demand

  Price elasticity of demand is defined as the responsiveness of demand to change in price

  PED= % change in quantity demanded /% change in price
• Necessities are basic goods or addictive products such as bread or cigarettes.
• Price elasticity of demand tends to fall the longer the time period because customers are more likely to find substitutes in the long term unless there is customer loyalty.
• Luxuries are goods bought if they can be afforded, discretionary elastic goods.
• Fuel prices increasing won't affect demand that much in the short term, as time goes on people will find cheaper alternatives like public transport.
• Arguably imported goods are luxuries as high income countries have more imports.
• Businesses in competitive markets face high price elasticity of demand for their product.
• The price of a product is relative to incomes, meaning products are only a small portion of an income.
• Pencils are inelastic but houses are elastic.
• Farmers keeping wheat prices low to get more sales are an example of high price elasticity of demand.
• The stronger the branding, the less substitutes are seen as acceptable to customers, reducing price elasticity of demand for a product.
• Certain customers may not see own brand cereal as a good substitute for Kelloggs, reducing price elasticity of demand for Kelloggs.
• Where a larger proportion of the customers income is spent on a product, the more elastic the product will be.
• Many products are sold by different businesses, and demand for a product may be inelastic but demand for the product sold by a certain business may be elastic.
• Easily substituted businesses, such as petrol by shell and by Tesco, are an example of how demand for a product may be inelastic but demand for the product sold by a certain business may be elastic.
• IED is important because it helps predict the impact of a business cycle on product sales.
• PED is important because it allows to know the consumers sensitivity to price changes, in order to apply an effective price strategy and estimate the weight of the price in purchase choices