Economics- Topic 1

The quantity of a good or service consumers are willing and able to buy at a given price in a given time period

Factors affecting demand:

• Advertisement
• Media image
• Substitute good
• Complementary good
• Changes in income
• Seasonality
• State of the economy

• Demand curve shift to the right=Increase (Income increase, advertisment, price of vodka drops, price drop)
• Left = Decrease (Poor media image, price of pepsi decreases (Coke),

Supply is defined as the quantity of a product that  a producer is willing and able to supply onto the market at a given price in a given time period.

• Has positive correlation (As price increases so does supply)

Factors affecting supply:

• Government policy. Can decrease or increase. Subsidy decreases costs, thus increases supply. Tariff increases costs, decreases supply. E.g. Chinese tyres.
• Weather
• Access to resources. Increase, less transport costs
• Price
• Costs; raw materials, rent etc. Higher costs= less supply
• How much customers are willing to pay

• Market equilibrium= The price at which supply meets demand (Above it there is excess supply, below there is excess demand

• Measures the extent to which demand reacts to a change in price
• If PED=0, then the demand curve will be vertical, ie demand will stay the same with a price increase.
• If PED= between 1 and 0 then demand is inelastic (more vertical)
• If PED= 1 then it is unit elastic (Price changes at the same rate as demand)
• If PED= more than 1 then demand is elastic (more horizontal)

• PED can be used to:
• Predict change in demand on the revenue of a product
• Price volatility in a market following changes in supply
• Effect of government indirect tax on demand.
• Used to help determine price if the price is discriminating.

• % change in quantity demanded/% change in price

• New-Original/Original *100

Existence of close substitutes:

• Will be more elastic with competition, as increase in price will decrease your demand.
• Water is much more inelastic. People will buy it no matter the price.

Time:

• Things become more elastic over time, as it takes time to adapt.
• People will make more adjustments over a longer time period.

Branding and Brand Loyalty

• These are the products that are bought without checking the price tag.
• Often high quality products. E.g. Rolex, Harley etc.
• Strong branding creates customers who buy out of loyalty rather than price.
• Necessity/Addiction
• Peak/Off Peak travel

• Market Share: The share of sales in a market which one business has, normally expressed in %.
• Non-Price Competition: Includes all possible inducements to buy the product other than a price cut. E.g. Design, advertising, reliability etc.
• Market Segment: A subdivision of a market in which consumers have distinct charecteristics and preferences. E.g. Socio-Economic Group A

What are the benefits of high market share?

• Increased price. No alternative. Will have to pay a high price
• Decreased customer service= Decreased costs.
• Increased sales- Higher revenue
• Economies of scale e.g. Bulk buy discount
• Monopsony power
• Increased brand image and awareness

• Marlborough **** not advertised on F1 cars anymore

Advertising Standards Agency:

• UK's independent regulator of advertising across TV etc.
• Magners banned in 2009 because it  implied that alcohol lead to success of a social occasion.

Corporate Social Responsibility:

• Accepting that organisations must take responsibility for their impacts on the community and environment, show consideration and behave ethically.
  

• Describes the extent to which demand for a product alters as a result of a change in people's real disposable income.
• Measured by YED.

• Normal Good: Products or services which we buy more of when income rises
• Inferior Good: Products which we buy more of when income falls.
• Luxury Good: Goods that people buy when they feel better off.

• If YED = +ve: Then the product is normal or luxury
• If YED=  -ve: Then the product is inferior

• Growth of Low Cost Airlines
• 50 european low cost airlines
• 8 million passengers in 1998- 59 million in 2005.
• Made it possible for those who couldn't fly before.
• EasyJet + RyanAir have 30% market share.

• The Rise of High Street Coffee Shops
• £900m a year industry
• First Starbucks opened in 1971.
• Now SB has more than 1000 branches in the UK.
• 16% market share
• Costa Coffee operates in 28 countries around the world.
• 150 high street coffee shops open in the UK each year

• The Long Tail
• Selling a large number of unique products in relatively small quantities.
• Internet has introduced it. E.g Amazon and iTunes