Demand definition
The amount of a good/service that customers are willing and able to purchase at any given price.
Definition of supply
The amount of a good/service a seller is willing and able to sell at any given price
When the market price increases, the supply would ….
Increase
Suppliers want to maximise profits by selling at a higher price
Mark up
Difference in market price.
Businesses enjoy a higher mark up
Equilibrium price
The situation in the market where demand is equal to supply
When relating to price we …
Move along the curve. Any other demand factor we shift the demand curve
Demand factors
Can also be referred to as market forces
- wealth(assets,jewellery,own shares)
- advertising
- income
- Population
- price of substitutes and complements
- trends(taste and fashion)
Supply factors shifting supply
Can also be referred to as market forces
Costs Price Subsidies Taxes Natural factors(flood, drought) Technology
Excess demand
Is below
Shortage
Forces the market price to increase so demand decreases
Reaching a new equilibrium
Excess supply
Above
(Surplus)
Price is forced down, decreasing supply
Reaching a new equilibrium
What is the elasticity of demand ?
Measures how sensitive/responsive quantity demanded is to a change in price
What is meant by inelastic demand ?
Quantity demanded is insensitive to a change in price
People buy it whatever the price
The steeper the curve…
The more inelastic the good Is
The flatter the curve
The more elastic the product is
Non-physical markets meaning
Online shopping and distributing
Physical markets meaning
Buyers can meet sellers and purchase face to face
Economies of scale
Businesses can buy supply in bulk and gain from economies of scale as the unit costs of production will fall.
Competition market
- Many firms
- low prices(usually)
- compete on price
Monopoly market
- one firm in theory
- or own more than 25% of the market share
- high prices usually
- not always high pricing. If there was a new entrant in the market undercutting the price of the monopoly, the monopoly would lower prices to push out the entrant out of the market
Oligopoly
- dominated by few firms
- compete on price
- collusion(two rivals secretly co-operate for mutual benefit)
- high prices which are similar
Monopolistic competition
- many firms
- prices are similar
- compete on non-price differences
Calculating unit costs=
Total production costs in period (time)/ total output in period (units)
State two characteristics of a monopoly market
- Higher prices
- inferior products
Market size meaning
The value of the combined sales of all the firms in a market
