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Business Theme 1 Marketing and people > 1.2 The Market > Flashcards

1.2 The Market Flashcards

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1
Q

Define Adding Value

A

Adding value = the difference between the price of the finished product/ service and the cost of the inputs involved in making it - adding special unique features to a product to help increase its selling price

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2
Q

4 Ways to add value:

A
  1. Build a brand
  2. Deliver excellent customer service
  3. Add product features and benefit customers wants
  4. Operate efficiently
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3
Q

Benefits of adding value

A

-Charge a higher price
-Creates a point of difference with competitors
-Protection against competitors offering lower prices
-Focuses business on its target market segment

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4
Q

What is Demand?

A

Demand for a good or service is the quantity that customers are willing and able to buy at a given price in a given period of time

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5
Q

What is the basic law of demand?

A

The basic law of demand is that demand varies inversely with price - lower prices make products more affordable for customers

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6
Q

Causes of changes in demand

A

-Incomes & price
-Fashions, tastes & preferences
-Advertising and branding
-External shocks
-Seasonal factors
-Demographics

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7
Q

Decrease in price=

A

Increases quantity demanded

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8
Q

Increase in price =

A

Fall in quantity demanded.

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9
Q

What is a luxury good?

A

A good which is non-essential, and is very responsive to change in income; an increase in income would cause a large increase in demand

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10
Q

What is a normal good/ necessity?

A

A good which is essential, demand less responsive to a change in price.

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11
Q

What is an inferior good?

A

A good which has an inverse relationship with income; as income rises, demand falls and vice versa e.g supermarket own brands

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12
Q

What is supply?

A

Supply is the quantity of a good or service that a producer is willing and able to supply

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13
Q

What is the basic law of supply?

A

As the price of a product rises, businesses expand to supply the market

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14
Q

Main causes of changes in supply

A

-Cost of production
-External shocks
-New technology
-Taxation & subsidies

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15
Q

What does a low unit cost mean?

A

A business can supply more at each price - e.g through higher productivity

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16
Q

What does a high unit cost mean?

A

Cause an inward shift of supply e.g rise in wage rates or an increase in energy prices/ other raw materials

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17
Q

What is a subsidy?

A

A subsidy is any form of government support - financial or otherwise- offered to producers and (occasionally) consumers

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18
Q

What is Market Equilibrium?

A

Balance between market demand and market supply

19
Q

Define Price Elasticity of Demand

A

Price elasticity of demand measures the extent to which the quantity of a product demanded is affected by a change in price

20
Q

Equation for price elasticity of demand

A

PED = %change in quantity demands/
%change in price

21
Q

Interpreting Price Elasticity of Demand:
Price elastic

A

More than 1 = Change in demand is more than change in price

22
Q

Interpreting Price Elasticity of Demand:
Price inelastic

A

Less than 1 = Change in demand is less than a change in price

23
Q

Interpreting Price Elasticity of Demand:
Unitary price elasticity

A

Exactly 1 = change in demand = change in price

24
Q

What value does a price elastic good have?

A

More than 1

25
Q

What value does a price inelastic good have?

A

Less than 1

26
Q

What value will a unitary price elastic good have?

A

Exactly 1

27
Q

How will a decrease and increase in price of a price elastic good effect revenue?

A

Reduction in price = increased sales revenue
Increase in price = decreases sales revenue

28
Q

Factors influencing PED

A

-Brand strength
-Competition
-Availability of substitutes
-Necessity

29
Q

How does brand strength effect PED?

A

Products with strong brand and reputation tend to be more price inelastic people buy no matter the price.

30
Q

Necessity - effect on PED

A

The more necessary a product, the more demand tends to be inelastic as people buy no matter the price.

31
Q

Availability of substitutes - Effect on PED

A

Demand for products that have los of alternatives (substitutes) tends to be price elastic

32
Q

Define income elasticity of demand (YED)

A

Income elasticity of demand measures the extent to which the quantity of a product demanded is affected by a change in income

33
Q

Equation for income elasticity of demand (YED)

A

YED = %change in quantity demanded/
%change in income

34
Q

Luxuries good effect on YED

A

-Income elasticity more than 1
-As income grows more is spent on luxuries, as income falls less is spent on luxuries.

35
Q

Necessities effect on YED?

A

-Less than 1 but more than 0
-As income grows less is spent on necessities

36
Q

What happens when income rises on inferior goods?

A

For inferior goods as income rises demand falls because consumers switch to better alternatives, substitute products become affordable

37
Q

For inferior goods as income falls what happens to demand?

A

For inferior goods, as income falls demand increases

38
Q

Limitations of calculating & using elasticities:

A

-Difficult to get reliable data
-Other factors affect demand e.g consumer tastes
-Many markets subject to rapid technological change - previous data less reliable
-Competitors will react

39
Q

How can a company make demand more price inelastic?

A

Building strong brands and product USPs

40
Q

Factor influencing YED?

A

-Stage in economic cycle eg recession and boom
-Minimum wage, legislation, taxes
-Nature of the good

41
Q

What can understanding YED help a business to do?

A

Helps a business plan their production and produces helping them generate higher profits and have less exposure to downturns in the economy.

42
Q

What pricing strategies are best used for products that are price elastic?

A

Price skimming

43
Q

What pricing strategies are best used for products that are price inelastic?

A

Competitive pricing

Business Theme 1 Marketing and people (5 decks)

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