Markets and Market Forces

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Definition of market

A place where buyers and sellers come together to exchange goods and services

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Commodity Market

  • Involves the trade of raw materials which can later be transformed    into finished products
  • Traded on exchanged commodities
  • A future (special contract) is used to purchase commodities
  • These are agreements to sell a fixed quantity of a commodity at a future date for a pre-determined price
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Consumer market

  • A market for finished consumer goods
  • Consumables/non durables e.g. food and clothing
  • Consumer durables e.g. banking, broadband
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Capital Goods Market

  • Used in the production of finished products but not incorporated in the finished products
  • e.g. bricks, tools
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Industrial Market

  • Goods used by industry in the production of other goods AND are incorporated in the finished product
  • e.g airplane seats
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Labour Market

  • The market brings together the buyers and sellers of labour
  • Individuals will supply firms as long as there is a reward for doing so (wages)
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Labour force

  • Includes those unemployes and those unemplyed but actively seeking work
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Unemployment

  • Thsose who are registered able and available and willing to work at the going wage rate in any suitable job but can't find any employment
  • Two main counts of unemployment in the UK are the claimant count and the labour force survey
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The claimant count

  • Only counts those who are out of work and claiming unemplyment benefits
  • Doesnt incluse married women with working husbands, those on sickness and incapcity benefits, under 18, people on training schemes
  • For this reason this measure can be seen as an inaccurate measure of unemployment
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The ILO measure

  • Has been established since 1998
  • Covers those without a job who have looked for work in the past months and are able to start work in 2 weeks
  • It's an international standard which makes comparisons between countries easier
  • Usually much larger than the claimant count measure.
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Niche Marketing

  • Where a business targets a smaller segment of a larger market where customers have specific needs and wants
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Advantages of Niche Marketing

  • Less competition
  • Clear focus
  • Builds up specialised knowledge and skill
  • Profit margins tend to be higher
  • Customers tend to be loyal
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Disadvantages of Niche Marketing

  • The growth of the firm depends on growth of the market
  • Not able to make use of economies of scale
  • Large firms may react aggressively if they enter the mass market
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Mass Marketing

  • Where a business sells to the largets part of the market where there are many similar products on offer
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Demand

  • Demand is the quantity of a good or service a consumer is willing and able to buy at a given price in a given time period
  • It is expected that demand will increase with decrease in price
  • The theory of demand deals with how a customer behaves if they are forced to deal with a change in price for a good of service
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Relationship between price and quantity - Demand

  • The demand curve for a good or service is downward sloping from left to right.
  • As price increases consumers demand less and vice versa
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Supply

  • The quantity of a good or service that producers are willing and able to supply onto a market at a given price in a given time period.
  • For most goods it's expected the quantity wil increase when prices increase
  • As the price of a good increases producers shift resources to the production of that good
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Relationship between price and quantity - supply

  • The supply curve for a good or service is upward sloping from left to right. As price increases quantity supplied by firms increases and vice versa.
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Conditions of demand

income

  • For normal goods demand wil rise as income increases
  • E.g new cars or clothes

the price of related goods

  • Complements - sometimes goods are demanded jointly and when the demand for one increases the other will fall

tastes in fashion

  • Whenever products become fashionable demand will increase

advertising

  • An effective advertising campaign can significantly increase the demand for a product to increase at every price level

government policy

  • changes to legisltion
  • changes in income tax and intrest rates

population

  • As population increases demand for most products will increase

expected price changes

  • oil in winter
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Conditions of supply

  • Price of the factors of production for example the cost of labour

The

factors of production

C ell

Enterprise

Land

Labour

  • The productivity of the factors of production
  • indirect taxes
  • Technological advances
  • natural resources
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Price determination

  • The price at which a good or service is sold is determined by the interaction of demand for the good or service and the supply of the good or service.

Equilibrium

  • The equilibrium price is that where the quantity demanded is equal to quantity supplied

Disequilibrium

  • Disqequilibrium occurs when a situation of excess demand arises
  •  Also occurs when there is a situation of excess supply
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Price elascisity of demand

A measure of how demand for goods responds to a change in price

CALCULATED BY:

Demand                             Dinner

______             or         _______     

Price                                   Plate

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PED less than one

A ped of less than one means that the product is price inelastic or that the percentage change in quantity demanded is less than he change in price or that the business can afford increase the price without causing signifigant decreases in demand

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PED greater than one

PED greater than one means a product is price elastic. Or that the change in quantity demanded is greater than the change of price. The business cannot afford to increase the price without causing signifigant decreases in demand.

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How can a business use PED

To forecast the effect of a price change on sales and evaluate if a price change is wise

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Strategies avaibale to reduce price elasticity

  • Have a strong usp
  • Merge or takeover a rival
  • increase the strength of the brand
  • Extensive advertising
  • Strong product differentiation
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Factors that affect price elasticity

  • How essential it is
  • If there are alternatives
  • the market it's aimed at
  • how important cash is to them
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How does a company go about calculating PED

  • Market research
  • test market at a particular price
  • observe activity of competitors
  • Use past data to forecast demand
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the difficulties of calculating PED

  • People don't always say what they say they will
  • Test market might be peculiar
  • Activity of competitors might not relate
  • the business can only estimate
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