Unit 2B:1 How businesses respond to markets.

Unit 2B:1

HideShow resource information

Economic systems

Public sector - Activity ran by state, e.g NHS.

Private sector - Activity ran by private firms.

Command economy - Public sector, ran by government and administrators 'command' activity.

Transition economic system - The change from Command economy to Mixed economy

Mixed economy - Both public and private sectors

Free market - Private sector only, there are no entirely free markets, but many economies have a larger private sector.

1 of 7

Market forces, scarcity and choice

Market forces - Supply/demand changing in a market, thus changing prices and business/consumer decisions. 

Entrepreneurs - People to take business risks.

Scarcity is used to describe the lack of resources compared to human needs/wants.

Choice - making choices based on what you can buy. This involved firms and consumers. E.g firms may choose between advertising and increasing capacity.

Opportunity cost - the option lost when making a choice or trade off.

2 of 7

Factors of demand

The following are all factors that affect demand:

  • Tastes - culture, preferences
  • Substitutes - E.g Margarine vs butter.
  • Complementary goods - things used together e.g Xbox games and an Xbox
  • Income - How much people earn/can afford
  • Population - How many people can buy your product (geographically)
  • Price - Lower price = higher demand.
3 of 7

Demand curves


Here is an example of a demand curve, as price goes down, demand goes up.

4 of 7

Supply curves


Here is an example of a supply curve, as price goes up, supply goes up.

5 of 7

Equilibrium price


The equilibrium price is the price where supply and demand meet. (no excess)

6 of 7

Price elasticity of demand

If a product is price elastic it means a small change in price will cause a large change in demand. The following make a product elastic:

  • The product has close substitutes
  • The product is a luxury good
  • The product has been around for a long time (e.g central heating)

If a product is a price inelastic it means for demand to change there needs to be a large change in price, an example is petrol. The following make a product inelastic:

  • No close alternative/substitute 
  • It is a necessity (e.g water)
  • It hasn't been around for a long time (e.g Hybrid cars)

If a product is elastic then firms must be careful when pricing, as the wrong price could ruin the demand.

7 of 7


No comments have yet been made

Similar Economics & Business Studies resources:

See all Economics & Business Studies resources »See all Competitive Markets resources »