1.2 Business A level. Flashcards

• non price factors that affect demand for a product or service.

  Price of substitutes

  Alternative brands

  Price of compliments

  Changes in consumer income

  Trends in fashion and tastes

  Marketing, advertising and branding

  Population structure / demographics

  Time of year

  Weather and climate

  External shocks
• Non-price factors that can affect supply for a product or service

  Cost of production

  Introduction of new technology

  Indirect taxes (e.g. VAT)

  Government subsidies

  External shocks
• Other non-price factors that can influence levels of supply (PINTS WC)

  Productivity

  Indirect taxes

  Number of firms

  Technology

  Subsidies

  Weather

  Costs of production
• Definition: Supply


  This is the amount of product or service that a business is willing and able to provide at a given price

  
• Definition of demand


  This is the amount of product or service that customers are willing and able to buy at a given price

  
• Surplus


  Where supply exceeds demand then there is a surplus

  This may be due to the price being too high
• shortage

  Where demand exceeds supply there will be a shortage

  This may be because the price being charged is too low
• How a price increase affects the supply curve

  as price increases suppliers want supply more products or services.

  
• How a price decrease affects the supply curve

  As prices decrease - suppliers want to supply less of a product or service

  
• Non-price factors that affect Supply

  Cost of production

  Introduction of new technology

  Indirect taxes (e.g. VAT)

  Government subsidies

  External shocks
• How a price increase affects the demand curve

  An increase in demand from customers will cause movement to the left along the demand curve (shown by the big yellow arrow)

  
• How a price decrease affects the demand curve

  An decrease in demand from customers will cause movement to the right along the demand curve (shown by the big yellow arrow)

  
• Non price factors that affect demand

  Price of substitutes

  Alternative brands

  Price of compliments

  Changes in consumer income

  Trends in fashion and tastes

  Advertising and branding

  Population structure / demographics

  Time of year

  Weather and climate

  External shocks
• How non-price factors can affect the demand curve: increase in demand

  An increase in demand (due to non-price factors) means that the whole demand curve shifts to the right, shown by the two yellow arrows

  
• How non-price factors can affect the demand curve: decrease in demand

  A decrease in demand (due to non-price factors) means that the whole demand curve shifts to the left, shown by the two yellow arrows

  
• PED formula


  % change in quantity demanded / % change in price

  
• % change in price formula

  new price - old price / old price ×100
• Elastic Demand


  Products and services that have elastic demand are responsive to a change in price

  This means if the business puts prices up, then demand will decrease
• inelastic demand


  Inelastic demand is for goods where if the price is changed the demand stays the same
• The factors influencing price elasticity of demand

  Availability of substitutes

  Frequency of purchase

  Necessities (staple goods)

  Luxury goods
• The significance of price elasticity of demand to businesses in terms of implications for pricing.

  Competitive pricing

  Skimming pricing
• Income Elasticity of Demand definition.


  It is a calculation used, by business, to estimate how demand will change given changes in income

  As consumer incomes change (up or down) so do demands
• inferior goods


  Demand will decrease as incomes increase.
• YED formula

  % change in quantity demanded / % change in income

  
• % change in price or quantity demanded formula

  Income new - Income old/ Income old x 100