defintions only

Brand strength (PED)

A factor where products with strong loyalty and reputation tend to be price inelastic.

Name the 5 factors that effect PED

Brand strength

Necessity

Habit

Availability of substitutes

Time

Income elasticity of demand (IED)

Measures the extent to which the quantity of a product demanded is affected by a change in income.

IED Formula

The % change in quantity demanded divided by the % change in income

Normal products

Products where a rise in consumer income results in a rise in demand, and a fall in income results in a fall in demand.

Luxuries

Products with an income elasticity of more than $1$, where proportionally more is spent on them as income grows (e.g., expensive holidays).

Necessities (IED)

Products with an income elasticity less than $1$ but more than $0$, where proportionally less is spent on them as income grows (e.g., milk).

Inferior goods

Goods with an income elasticity of less than zero where demand falls as income rises because consumers switch to better, affordable alternatives.

Demand

The quantity that customers are willing and able to buy at a given price in a given period of time.

Basic Law of Demand

The principle that demand varies inversely with price, where lower prices makes products more affordable for consumers.

Inferior Goods

Goods for which demand falls as consumers choose better alternatives that are now affordable as their incomes rise.

Income effect

When a consumer's disposable income changes their purchasing power changes. This directly alters their spending habits and the types of products they buy. 

Substitution Effect

A price rise in one product makes alternative products look more financially attractive. Consumers logically "substitute" the more expensive item for a cheaper alternative to get similar utility for less money.

Supply

The quantity of a good or service that a producer is willing and able to supply onto the market at a given price in a given time period.

Subsidy

Any form of government support—financial or otherwise—offered to producers and (occasionally) consumers.

Market Equilibrium

A state of balance in a market where demand and supply are equal, resulting in no excess demand or supply.

Market Clearing Price

The equilibrium price ($Pe$) where the quantity demanded and the quantity supplied are perfectly in balance.

Market Demand

The total quantity (volume) demanded for a product in a market by all customers.

Demand

The quantity that customers are willing and able to buy at a given price in a given period of time

Market Supply

The total quantity (volume) of a product supplied to a market by all suppliers.

Supply

The quantity of a good or service that a producer is willing and able to supply onto the market at a given price in a given time

Market equilibrium

When there is a balance between demand and supply where there is no excess demand or supply for example a football club supplying 8000 tickets and selling at a price where 8000 tickets are demanded

External Shocks

Sudden and often significant changes in the external business environment that impact demand or supply, such as economic downturns or loss of consumer confidence.

Causes of Changes in Demand

Price Changes

income Changes

Fashions, Tastes & Preferences

Advertising & Branding

External Shocks

Seasonal Factors

Causes of changes in market supply

Costs of Production

New Technology

Taxation & Subsidies

External Shocks

Price of Other Goods

Number of Sellers

Formula for Price Elasticity of Demand (PED)?

The % change in quantity demanded divided by the % change in price

Price elastic

The change in demand is more than the change in price.

The value of PED is more than 1

Price inelastic

Change in demand is less than the change in price

The value of PED is less than 1

Unitary price elasticity

Change in demand = change in price

The value of PED is exactly 1

What is elasticity

The responsiveness of demand to a change in a relevant variable - such as price or income

Price elasticity of demand

The extent to which the quantity of a product demanded is affected by the change in price