How businesses respond to their markets.

Flash cards for Edexcel Economics and business unit 2B, How businesses respond to their markets.

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  • Created on: 22-05-15 10:23
What is a market?
Any medium which buyers and sellers interact and agree to trade at a price.
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What is a buyer?
People or organisations who want to purchases something; they create demand for goods or services.
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What is a seller?
People or organisations who want to sell something; they create the supply of goods or services.
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What is meant by the term dynamic market?
Markets are constantly changing- countless decisions have to be made by buyers and sellers that alters the behavoiur and nature of a market.
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How and why do sellers respond to changes in the market place?
Improve existing products or services or introduce new ones. They respond to remain competitive and to avoid being left behind..
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List four types of resources
Land- raw materials and land itself, Labour-human input, Capital- Anything that is used to produce something else such as tools, equipment and buildings, Enterprise- Human spark that combines the above and creates a product.
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What is a free market economy?
When there is no interference from outside agencies, like the government. Supply and demand forces operate freely.
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How does the profit signalling mechanism theory work?
Buyers decise what to buy-->This creates demand-->Producers see chance to make profit-->Resources are allocated to produce product-->This creates the supply-->Existence of profit encourages new businesses to join the industry.
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What is consumer sovereignty?
The power of the consumer to determine what is produced.
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Why is consumer sovereignty important?
Resources are scarce and it gives society as a whole the best standard of living as possible.
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What do all economic models optimistically assume?
Buyers and sellers know what is happening in the market, Buyers make informed ration choices, Resources are easily transferred from non-profitable areas to profitable ones, markets are competitive, If there is demand the market will provide it.
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What is elasticity?
How much one variable changes in response to a change in another variable.
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What is the formula for Price elasticity of Demand?
PED=%Change in quantity demanded/ %Change in price
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What does PED measure?
The responsiveness of the quantity demanded to a change in price.
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What happens when the price of an price elastic products changes?
Price change causes a proportionally bigger change in quantity demanded.
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What happens when the price of a unitary price elasticity product changes?
The price change causes the same proportional change in quantity demanded.
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What happens when the price of a price inelastic product changes?
A price change causes a proportinally smaller change in quantity demanded.
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What numerical value does a price elastic product have?
Less than -1
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What numerical value does a unitary price elasticity product have?
-1
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What numerical value does price inelastic product have?
Between 0 and -1
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Why is PED important for businesses?
Marketing- Reaction to competitors, costs, Branding- persuade customers there is no acceptable substitute, total revenue- Can dramatically effect revenue.
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How would the demand curve of a price elastic product look?
It would be a very gentle slope.
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How would the demand curve of of a price inelastic product look?
It would have a very steep gradient.
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Is increasing the price of a price inelastic product a good thing?
Yes
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If demand is price elastic how would increasing and decreasing price affect toal revenue?
Increase in price reduces Total reveue, Decreasing price increases revenue.
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If demand is price inelastic how would increasing and decreasing price effect total revenue?
Increasing price would increase total revenue, Reducing price would decrease total revenue.
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What sort of market are highly price elastic products found?
High competitive markets.
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List some factors that effect the degree of price elasticity?
Number and closeness of substitutes, luxury or necessity, Proportion of income spent on good, Time scale
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What is the formula for income elasticity of Demand?
YED=%Change in quantity demanded/ %Change in income
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What happens to a income elastic product when income chnages?
The income change caused a proportionally bigger change in quantity demanded.
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What happens to a unitary income elastic product when income changes?
The change in income caused the same proportional change in quantity demanded.
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What happens to a income inelastic product when income changes?
The income change causes a proportionally smaller change in quantity demanded.
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What numerical value does a income elastic product have?
Greater than 1
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What numerical value does a unitary income elastic product have?
1
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What numberical value does a income elastic product have?
Between 0 and 1
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What is a normal good?
A good or service whoes quantity demanded rises when income rises and falls when income falls.
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What is an inferior good?
A good or service that sees an increase in demand following a fall in income and a fall in demand following a rise in income.
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Do normal goods have a positive or negative YED value?
Positive
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Do inferior goods have a positive or negative YED value
Negative
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What factors affect the degree of income elasticity?
Whether the product is a luxury or a necissity.
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Why is YED important?
Income changes relatively slowly and individual incomes have little effect of YED so income needs to change en masse., Businesses need to plan and react accoringly eg recession.
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List and explain three marketing stratagies?
Try and increase sales or develop new markets, Defensive-Reacting to competition and try to maintain market share, a mixture of both.
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What is marketing?
The action or process of promoting and selling products or services, including market research and advertising. It is how a business connects to ts customers.
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What are the four P's?
Price, Product, Promotion, Place
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What is marketing mix?
the tactics and stratagies used to promote and sell their product or services
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What does the marketing mix depend on?
Changes in consumer behavoiur, Actions of competitors, Emerging technologies, problems with costs, external economi influences.
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When is price more important?
When launching a product or entering a new market, For products with lots of competition.
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When is price less important?
If the product had little competition, if there is a strong brand, when producers accept the going market price
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When is product more important?
For high tech products, wen quality or reliability are important to consumers, to differentiate a product from the competition.
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When is product less important?
Standardised or mass market products where price is critical.
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When is promotion more important?
When a product is new, when sales are declining, when competition is high.
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When is promotion less important?
If there are few competitiors, consumers are already aware of the product
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When is place more important?
Launching new products, consumers need to see and be aware of a product.
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When is place less important?
Interenet had made physical place less important.
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What is non-price competition?
When businesses spend time on product design, advertising, customer service they can avoid cutting prices to keep customers.
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What is micromarketing?
Marketing of products or services designed to meet the needs of a very small section of the market.
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How is micro marketing used by businesses?
Amazon uses the internet by looking at past purchases, Supermarkets use loyalty cards to identify individual transactions.
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What is marketing ethics?
Means applying standards of fairness and morality to marketing decisions and stratagies.
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Why might a business market ethically?
Businesses are more aware they need to look after stakeholders, motivated to act responsibly, commercial sese an ethical image may increases sales, ones that aren't ethical stand out, internet keeps consumers better informed, legislation.
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Why is marketing good?
Informs consumers on the products they want, informs consumers about products they don't know about, helps consumers make rational choices they benefit them, helps market operate efficientel and increases consumer soveregnty.
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Whay is marketing bad?
Manipuates consumer behaviour, encourages to consumer unhealthy things, can be misleading and make choices harder, £20 billion is spend in the UK each year and could be better spent elsewhere.
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Other cards in this set

Card 2

Front

What is a buyer?

Back

People or organisations who want to purchases something; they create demand for goods or services.

Card 3

Front

What is a seller?

Back

Preview of the front of card 3

Card 4

Front

What is meant by the term dynamic market?

Back

Preview of the front of card 4

Card 5

Front

How and why do sellers respond to changes in the market place?

Back

Preview of the front of card 5
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