202 market analysis

Question 1

how to calculate price elasticity of demand

Answer 1

PED = % change in quantity demanded.
———————————————-
% change in price

(1+- elastic, 0-1. inelastic)
- elastic- demand changes by a larger percentage than price has changed by
-inelastic - demand changes by a small percentage than price has changed by

Question 2

evaluate the impact of changes in price on business revenue

Answer 2

price elastic- overall revenue increases with a price decrease- overall revenue falls with a price increase
price inelastic - overall revenue falls with a price decrease- overall revenue increases with a price increase

Question 3

factor affecting PED

Answer 3

• availability of substitutes-> demand for products with loads of alternatives-> elastic
• brand strength-> strong brand loyalty-> price inelastic
• necessity-> more necessary a product-more demand -> inelastic

Question 4

how to calculate income elasticity of demand

Answer 4

YED = % change in quantity demanded
——————————————-
% change in income

Question 5

interpreting YED

Answer 5

positive- normal goods (demand increases when income increases)->
postitve and over 1- luxury goods (same as normal good but the higher the number themore demand increases when income increases -> demand increases as income increases
negative- inferior goods- demand decreases ‘better off’ switching to alternatives-affordable

between 0-1- income inelastic ->. demand changes by a smaller proportion to income, 1+- income elasticity-> demand changes by a larger proportion to income)