Summary Chapter 2 - The Market: AS level edexcel business studies revision summaries
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Course
Business economics
Institution
Bachillerato
This document that I made during my Y12 course, I completely summarized the second chapter (The Market) of the indicated book: 9781292239170. In addition to using the book itself to making these notes/summaries, I have used several alternative platforms to complete the syllabus in detail. Finally, ...
Contents
THE MARKET (2)................................................................................................................. 1
DEMAND (4).................................................................................................................... 1
SUPPLY (5)...................................................................................................................... 2
MARKETS (6)................................................................................................................... 3
PRICE ELASTICITY OF DEMAND (PED) (7)........................................................................4
INCOME ELASTICITY OF DEMAND (YED) (8).....................................................................5
DEMAND1 (4)
This is the amount of a product that consumers are willing and able to purchase at any
given price. This does not refer what consumers want to buy but what they actually can
and are able to buy. With this data we are able to construct a demand curve 2.
The curve shows the quantity of a product or service that will be demanded at any given
price. A change in the price of a product or service will lead to a change in the quantity
demanded.
Where there is fierce competition:
High demand will pull prices up. In the long-term this will result in inflation
Weak demand forces firms to increase prices
If supply is plentiful, prices will fall
Supply shortage (scare) tends to increase price
FACTORS LEADING TO A CHANGE IN DEMAND
For most goods and services higher prices will tend to reduce demand and lower prices
will raise demand.
Prices of substitutes3: The price of these will affect
products. if these prices fall, the quantity
demanded of the substitute rises. As a result, the
demand for the product would also fall.
Price of complements: this is when customers
normally buy certain goods together because they
are used/consumed together. Demand for such
products is likely to be affected by the price of
complementary goods.
Changes in consumer’s incomes: the amount of
money that people earn will influence the amount
and types of goods that they buy. Generally, when
income rises, demand for goods also rise. z
Normal goods: goods for which demand
will rise when income rises
Inferior goods: demand for these products will actually fall when income
rises
Fashions, tastes and preferences: over a period of time, demand patterns change
because of changes in consumer tastes and fashion.
Marketing, advertising, and branding: businesses try to influence demand for
their products through advertising and various forms of promotion. If goods are
1
The quantity of a product bought at a given price over a given period of time.
2
A line drawn on a graph that shows how much of a product will be bought at different
prices
3
Goods that can be bought as an alternative to others, but perform the same function
1
, Business AS revision summaries
Borja Jimenez
heavily advertised demand for them is likely to increase. Businesses also use
branding to influence demand. By developing brand recognition, businesses will
be able to increase sales.
Demographics: as population grows, there will be an increase in demand for
nearly all goods and services. However, demand is also affected by the structure
of the population, not only by its size.
External shocks: factors beyond the control of businesses can have an impact on
the demand for products
Competition: if a strong new competitor enters the market for the first
time, demand is likely to fall for the original firm’s product
Government: a government can influence demand in a number of ways;
raising taxes, new laws and legislations… etc.
Economic climate: if the economy is growing, demand for most goods
and services will tend to rise. In contrast suing recession, demand for non-
essential items is likely to fall
Social and environmental factor: demand for some goods might be
affected by changes in society. Environmental issues and worries can also
influence demand.
Seasonality: some goods and services have seasonal demand; demand rises at
particular time of year; (because of the climate or maybe because of calendar
events and festivities).
SUPPLY (5)
This is the amount of a product that suppliers are
willing to offer to the market at a given price. The
higher the price for a product or service, the more that
it will be offered to the market.
With appropriate data we can draw a supply curve.
From the graph we can identify hat at higher prices a
greater quantity will be supplied and vice versa.
FACTORS LEADING TO A CHANGE IN SUPPLY
In general, where market price rises, suppliers are
more willing to supply more. This is because they are
likely to make more profits at higher prices.
Changes in costs of production: if production
costs rise, sellers are likely to reduce supply;
profits are reduced. In contrast, if costs fall,
supply will increase because production becomes more profitable.
Availability of resources: if there is a shortage in factors of production, it will make
it difficult for producers to supply the market
Introduction of new technology: new technology is normally more efficient and so
will help to reduce production costs, encouraging firms to offer more for sale.
Indirect taxes: these taxes, such as VAT, and excise duties4 will affect supply.
When they are imposed or increased, supply will decrease as these represent
additional costs for firms.
Government subsidies: this is when governments give businesses money in the
form of grants. Subsidies may be given to forms to try and encourage them to
produce a particular product. As a result, supply will increase, as these help to
reduce average costs for businesses.
External shocks: factors beyond the control of business can have an impact on
supply
o World events
o Weather: supply of products can be affected by weather conditions. Bad
weather can disrupt the supply of many goods
o Government: economic policies and legislations can have great impacts
on supply
4
Taxes placed on items such as alcohol and tobacco
2
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