Transcript Demand and Supply - GillmonBusinessStudies

Demand and Supply
Factors that affect Demand
 Price
 Income
 Population
 Advertising
 Interest Rates
 Price of complements
 Price of substitutes
 Fashion
Consumer Surplus
 The difference between how much buyers are
prepared to pay for a good and what they actually
pay.
Producer Surplus
 The difference between the market price which firms
receive and the price at which they are prepared to
supply.
Factors that affect Supply
 Price
 Costs of Production
 Indirect Taxes
 Natural Factors
 Price of other goods
 Changes in Technology
 Subsidies
Excess Demand and Supply
 Excess demand where demand is greater than supply
and there are shortages in the market
 Excess supply is where supply is greater than
demand and there are unsold
Complements and Substitues
 Complements or Joint Demand : This means that if
in demanding one good a consumer is likely to
demand another good. E.g. Tennis rackets and tennis
balls.
 Substitutes or Competitive Demand: these are goods
that can be replaced by another good. E.g. coke and
pepsi
Derived Demand, Composite Demand
 Derived Demand: It is the demand derived that
creates a demand for goods needed in the production
of another good.eg an increase in the demand for
cars will lead to an increase in the demand for steel.
 Composite Demand: is when a good a demanded for
2 or more distinct purposes.eg milk is used for
cheese and yogurt. So an increase in demand for one
composite good will lead to fall in supply of another
good. E.g. An increase in demand for oil from the
chemical industry will lead to a fall in supply of oil
for petrol.
Joint Supply
 Joint supply is when a good is supplied for different
purposes. E.g. cows are supplied for both beef and
leather.
 An increase in demand for one good in joint supply
will lead to an increase in its price. This leads to an
increase in quantity supplied. The supply of the other
good will increase leading to a fall in its price.
Total Revenue
 Price x quantity sold
Government and PED
 Governments want to raise revenue by imposing
indirect taxes and VAT and excise duties on
products.
 Governments select products which have inelastic
demand.
 They target necessities or have few substitutes but
they do not target food and water.
Factors affecting the PED
 The availability of substitutes
 Degree of necessity
 Proportion of income spent on the product
 Time Period
 Price Inelastic <1
 Price Elastic > 1
 Unitary Elastic = 1
Factors affecting the PES
 Time
 Stock levels
 Production speed
 Spare Capacity
 Ease of entry in Market
 Price Inelastic <1
 Price Elastic > 1
 Unitary Elastic = 1
Factors affecting the YED
 Necessities
 Luxuries
 YED asks the question of whether the good is
normal, inferior or luxury?
 Inferior = <0
 Normal = Between 0 and 1
 Luxury = >1
 Income elastic >1 or <-1
 Income inelastic between +1 and -1
Cross Elasticity of Demand
 Inelastic between + 1 and -1
 Elastic >1 and less than -1
 Complement is <0
 Substitute is >0
Normal ,inferior and Giffen
 Normal good is when the demand for a good
increases as income increases
 Inferior good is where demand decreases as income
increases
 Giffen good is a special type of good where demand
increases as price increases eg the demand for bread
would increase on very low income families.
Therefore the income effect outweighs the
substitution affect .
Upward sloping demand curves