2.2 firms consumers and elasticities of demand

Question 1

law of demand

Answer 1

when price increases then the quantity demand falls and when price falls the quantity demanded rises

Question 2

PED

Answer 2

price elasticity of demand
- the responsiveness of quantity demanded given a change in price

Question 3

PED formula

Answer 3

% change in quantity demand ÷ % change in price

Question 4

elastic

Answer 4

more than proportionate change in demand (>-1)

Question 5

inelastic

Answer 5

less than proportionate change in demand (<-1)

Question 6

unitary

Answer 6

equal change in demand (=-1)

Question 7

factors affecting PED

Answer 7

• necessity
• substitues
• addictiveness
• proportion of income spent on good
• durability of good
• peak and off peak demand

Question 8

pricing strategies

Answer 8

• cost plus
• skimming
• penetration
• predatory
• psychological
• competitive

Question 9

cost plus

Answer 9

calculating mark up on unit cost

Question 10

skimming

Answer 10

often when a new product is launched so high prices are set temporarily before competition enters market

Question 11

penetration

Answer 11

setting a low price initially

Question 12

predatory

Answer 12

setting a loss making price to drive competition out the market (illegal)

Question 13

psychological

Answer 13

£9.99

Question 14

competitive

Answer 14

when prices are set to reflect those of competition (often to undercut them when products are similar)

Question 15

factors affecting pricing strategy

Answer 15

• USPs/differentiation
• PED
• stage in product life cycle

Question 16

non price competition

Answer 16

competing using other aspects of marketing to make a product stand out in the market and encouraging customers to buy

Question 17

marketing methods

Answer 17

• product differentiation
• advertising and other promotional methods
• distribution methods

Question 18

YED formula

Answer 18

% change in quantity demanded ÷ % change in income

Question 19

inferior goods

Answer 19

see a fall in demand as income increases (<0)

Question 20

normal necessary goods

Answer 20

demand increases as income increases (between 1 and 0)

Question 21

normal luxury goods

Answer 21

increase in income causes an even bigger increase in demand (>1)