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1st sem- 1BSA > MANECON MIDTERMS > Flashcards

MANECON MIDTERMS Flashcards

1
Q

______________is the process of researching and analyzing customer demand for a particular product or service in order to determine the most effective pricing strategies and sales tactics

A

DEMAND ANALYSIS

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2
Q

Demand analysis process needs to be done in a structured manner for a particular market and affects the business strategy and decisions. Some of the steps which are to be followed for the analyzing the demand are:

A

STEPS IN THE DEMAND ANALYSIS

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3
Q

(STEPS IN THE DEMAND ANALYSIS)

Demand is never constant across a single year or a time. A less demand in a particular month may not be a sign of an issue with the product line but it may be that due to climate change, the demand of an item like an air conditioner may go low but it may again rise in summer season.

A

UNDERSTANDING BUSINESS PARAMETERS

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3
Q

STEPS IN THE DEMAND ANALYSIS

A
  1. MARKET SELECTION
  2. PRODUCT/SERVICE CATEGORY ANALYSIS
  3. UNDERSTANDING BUSINESS PARAMETERS
  4. UNDERSTANDING THE COMPETITORS AND PARTNER TRENDS
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4
Q

(STEPS IN THE DEMAND ANALYSIS)

Demand is linked to a market. Without knowing the market properly, demand cannot be analyzed. Every business would be operating in a single or multiple markets but it should be clearly known. The first step is understanding the market and knowing the demand trends for the particular product or service.

A

MARKET SELECTION

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5
Q

(STEPS IN THE DEMAND ANALYSIS
)

Next step would be to make sure which product or service is being used to analyze the demand. A company may be having a product portfolio of 20 products. Total demand would not give a picture at an individual level. It may happen that demand is huge for 5 categories and low for the rest of 15 but still overall demand is high.

A

PRODUCT/SERVICE CATEGORY ANALYSIS

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6
Q

(STEPS IN THE DEMAND ANALYSIS)

For an accurate demand analysis, we also need to see what our partners, vendors and suppliers are predicting in the market as they are also in the same market and product category. Also competitor’s performance and past sales can help us analyze the demand correctly.

A

UNDERSTANDING THE COMPETITORS AND PARTNER TRENDS

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7
Q

In economics, a __________ is a table that shows the quantity demanded of a good or service at different price levels. A demand schedule can be graphed as a continuous demand curve on a chart where the Y-axis represents price and the X-axis represents quantity.

A

Demand Schedule

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8
Q

Analysts can estimate the demand for a good at any point along the demand schedule. ______________, used in conjunction with supply schedules, provide a visual depiction of the supply and demand dynamics of a market.

A

Demand schedules

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9
Q

In economics, a demand schedule is a table that shows the quantity demanded of a good or service at different price levels. A demand schedule can be graphed as a continuous demand curve on a chart where the Y-axis represents ______ and the X-axis represents ________.

A

*price
**quantity

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10
Q

inform management of the elasticity of a product, the response in demand of a good based on changing prices.

A

Demand schedules

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10
Q

are used to forecast the raw materials and labor needed during manufacturing should management decide to sell goods at one price over another.

A

Demand schedules

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11
Q

do have limitations, as they must be continually revised to match true market expectations as well as they do not incorporate non-financial impacts to demand.

A

Demand schedules

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12
Q

Understanding Demand Schedules

A demand schedule most commonly consists of _______________. The first column lists the **_______for a product in ascending or descending order. The second column lists the **___________ at that price. The price is determined based on research on the market.

When the data in the demand schedule is graphed to create the **___________, it supplies a visual demonstration of the relationship between price and demand, allowing easy estimation of the demand for a product or service at any point along the curve.

A demand schedule tabulates the quantity of goods that consumers will purchase at given prices.

A

two columns
**price
**quantity of the product desired or demanded
**demand curve

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13
Q

What Are the 2 Types of Demand Schedules?

Demand schedules may be prepared for individual consumers or for the broad, general market. These two demand schedules will differ as the _____________ will encompass a more broad set of expectations while an ___________may be more refined into a specific subset of data.

A

*market demand schedule
** individual demand schedule

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14
Q

(different aspects of value to a demand schedule)

Demand schedules inform of elasticity. Though it’s really the underlying data that drives the information, demand schedules clearly communicate whether products are elastic or inelastic. An elastic product can have its price materially changed without a major impact on the demand for the good. Inelastic goods may suffer severe declines during price increases, though. This information better informs management of how to handle pricing strategy.

A

DEMAND SCHEDULES DRIVE PRICING DECISIONS

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14
Q

What Information Does a Demand Schedule Show?

A

A demand schedule is meant to inform a manufacturer, distributor, or retailer of consumer demand for a product at different price points. This information may or may not incorporate a time series where the demand schedule can be tracked over time. Alternatively, a demand schedule from different markets may be compiled and shown against each other for comparative analysis.

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15
Q

What Are Demand Schedules Used for?

Demand schedules are used to make __________, ____________, ____________are on hand to meet demand, and to set pricing strategies. The demand schedule summarizes the economic impact of how rising prices can influence the demand of a good (and vice versa).

A

manufacturing plans, forecast sales, ensure appropriate resources are on hand to meet demand, and to set pricing strategies.

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16
Q

(different aspects of value to a demand schedule)

Companies can aggregate data and analyze where the price point makes the most sense for the demand they want to achieve in the market. The ultimate price a consumer pays for the good they want is often dictated by the relationship between points along this demand schedule.
Demand s

A

DEMAND SCHEDULES DRIVE PRICING DECISIONS

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17
Q

(different aspects of value to a demand schedule)

Once a company has selected its price point, the company can then use the demand schedule to understand how many units it expects to sell over time. This means the company can better forecast what raw materials, equipment, and labor it will need at what times to deliver expectations to the market. This may also allow the company to plan ahead and lock into favorable pricing knowing there may be a certain level of demand at given points in time.

A

DEMAND SCHEDULES LEAD MANUFACTURING ESTIMATES

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18
Q

(different aspects of value to a demand schedule)

Once a company better understands the market and its specific consumer base, the company can leverage that information to other products. This includes forecasting what may happen if the company launches a brand-new product or line in the future.

A

DEMAND SCHEDULES TRANSLATE TO OTHER PRODUCTS

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19
Q

A ______________is a series of points that identify what consumer demand will be for a product at different price points. Businesses use this information to make smarter business decisions, as sometimes it is not always in the best interest to simply try and sell a product for the highest possible price. This information from a demand schedule also informs management of selling, manufacturing, and delivery needs in the future.

A

demand schedule

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20
Q

The ______________is a line graph utilized in economics, that shows how many units of a good or service will be purchased at various prices. The price is plotted on the vertical (Y) axis while the quantity is plotted on the horizontal (X) axis.

A

demand curve

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21
Q

are used to determine the relationship between price and quantity, and follow the law of demand, which states that the quantity demanded will decrease as the price increases. In addition, ___________are commonly combined with supply curves to determine the equilibrium price and equilibrium quantity of the market.

A

demand curve

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21
Q

The determinants of demand are also known as _____________. The following factors affect an individual’s demand for a commodity:

A

demand shifters

22
Q

The demand for a commodity by a buyer is generally not a fixed quantity. It is affected by many factors. The factors that influence the demand are called the ___________________. The ______________are also known as demand shifters. The following factors affect an individual’s demand for a commodity:

A

DETERMINANTS OF DEMAND

23
Q

DETERMINANTS OF DEMAND

When a change in price of the other commodity leaves the amount demanded of the commodity under consideration unchanged, we say that the two commodities are unrelated, otherwise these are related. The related commodities are of two types’ substitutes and complements. When the price of one commodity and the quantity demanded of the other commodity move in the same direction (i.e., both increase together and decrease together).

A
  1. PRICES OF RELATED COMMODITIES
24
Q

DETERMINANTS OF DEMAND

The amount demanded of a commodity also depends upon the ______________. With an increase in income, increased amount of most of the commodities in his consumption bundle, though the extent of the increase may differ between commodities.

A
  1. INCOME OF THE INDIVIDUAL
25
Q

DETERMINANTS OF DEMAND

It is quite well that the change in _____________of consumers in favor of a commodity results in smaller demand for the commodity. Modern business firms, which sell product with different brand names, rely a great deal on influencing____________of households in favor of their products (with the help of advertisements, etc.) in order to bring about increase in demand of their products.

A
  1. TASTES AND PREFERENCES
26
Q

DETERMINANTS OF DEMAND

The amount demanded also depends on consumer’s taste. Tastes include fashion, habit, customs, etc. A consumer’s taste is also affected by advertisement. If the taste for a commodity goes up, its amount demanded is more even at the same price and vice-versa.

A
  1. TASTES OF THE CONSUMERS
27
Q

DETERMINANTS OF DEMAND

The_______of an area and the ________ prevailing there has a decisive effect on consumer’s demand. In cold areas, woolen cloth is demanded. During hot summer days, ice is very much in demand. On a rainy day, ice-cream is not so much demanded.

A
  1. CLIMATE AND WEATHER
27
Q

DETERMINANTS OF DEMAND

The amount demanded of a commodity is also affected by the amount of ________ as well as its distribution. The wealthier are the people, higher is the demand for normal commodities. If wealth is more equally distributed, the demand for necessaries and comforts is more. On the other hand, if some people are rich, while the majority is poor, the demand for luxuries is generally less.

A
  1. WEALTH
28
Q

DETERMINANTS OF DEMAND

If consumers expect changes in price of a commodity in future, they will change the demand at present even when the present price remains the same. Similarly, if consumers expect their incomes to rise in the near future, they may increase the demand for a commodity just now.

A
  1. EXPECTATIONS REGARDING THE FUTURE
29
Q

DETERMINANTS OF DEMAND

The level of demand for different commodities also depends upon the business conditions in the country. If the country is passing through boom conditions, there will be a marked increase in demand. On the other hand, the level of demand goes down during depression.

A
  1. STATE OF BUSINESS
30
Q

is a ratio that shows how much demand for a product changes when the price of that product changes. A ratio of greater than one indicates an elastic product; a ratio of less than one indicates an inelastic product.

_________________is a measurement of the change in the demand for a product as a result of a change in its price. If a price change creates a large change in demand, that is known as elastic demand. If a price change creates a small change in demand, that is an inelastic demand.

A

PRICE ELASTICITY OF DEMAND

31
Q

A ratio of greater than one indicates an

A

elastic product

32
Q

a ratio of less than one indicates an ________.

A

inelastic product

33
Q

A good or service is considered___________if the price elasticity is infinite, meaning demand changes substantially even with minimal price change.
If price elasticity is _________, the good is elastic; if________, it is inelastic.
If a good’s price elasticity is 0, there is no amount of price change that produces a change in demand, and it is **_________.
If a price change leads to an equal percentage change in demand, the price elasticity is exactly 1, known as unitary elasticity.
If there are no good substitutes and the product is necessary, demand won’t change when the price goes up, making it inelastic.

A

perfectly elastic
**greater than 1
** less than 1
**perfectly inelastic

34
Q

How elastic a product is depends on a variety of factors that can change over time. Some of these factors are within a business’s control. Others are a matter of market conditions.

A

FACTORS THAT AFFECT PRICE ELASTICITY OF DEMAND

35
Q

(FACTORS THAT AFFECT PRICE ELASTICITY OF DEMAND)

The more easily a shopper can substitute one product for another, the more elastic demand for those products will be. For example, if shoppers like coffee and tea equally, they will be happy to switch to tea if the price of coffee goes up. When this happens, the demand for coffee will fall. This is because coffee and tea are considered good substitutes for each other.

A

AVAILABILITY OF SUBSTITUTES

36
Q

Knowing the price elasticity of demand for goods allows someone selling that good to make informed decisions about pricing strategies. This metric provides sellers with information about consumer pricing sensitivity. It is also key for makers of goods to determine manufacturing plans, as well as for governments to assess how to impose taxes on goods.

A

Importance of Price Elasticity of Demand

37
Q

The Bottom Line
Price elasticity of demand is a ratio that shows how much demand for a product changes when the price of that product changes. A ratio of greater than one indicates an elastic product; a ratio of less than one indicates an inelastic product.

Economists and marketers use price elasticity of demand to understand how consumer behavior changes in response to price. The more substitutes for a product there are, the more elastic demand for it becomes. Businesses strive to create inelastic products that will retain the same level of demand even when prices increase.

A
38
Q

(DEMAND ANALYSIS AND OPTIMAL PRICING)

is the practice of analyzing customer and market data to find the most optimal price point for a product or service. The goal of ___________ is to determine the best price that will help attract customers, maximize sales, and increase profits.

A

Price optimization

39
Q

(DEMAND ANALYSIS AND OPTIMAL PRICING)

There is a direct relationship between the price and demand of the goods and services, which means the prices of goods impacts its demand. Customer always wants goods and services for a reasonable and low price from the producer.

Just as there is a relationship between the firm’s demand curve and the price elasticity of demand, there is a relationship between its marginal revenue curve and elasticity. Where marginal revenue is positive, demand is price elastic. Where marginal revenue is negative, demand is price inelastic.

A
40
Q

are vital concepts in economics that help businesses and policymakers make informed decisions about pricing and revenue optimization. In this article, we will explore these concepts in a straightforward and accessible manner, shedding light on their significance and relationship.

A

Marginal Revenue and Price Elasticity Of Demand

41
Q

in the context of economics and business, refers to the additional revenue generated by selling one more unit of a product or service. It represents the change in total revenue resulting from the sale of an extra unit and plays a crucial role in pricing decisions and profit maximization for firms.

A

Marginal Revenue

42
Q

Note:

To calculate Marginal Revenue, one must observe the change in total revenue when the quantity of output is increased by one unit

A
43
Q

When the Price Elasticity of Demand is greater than 1, demand is considered ________. In this case, a small change in price leads to a proportionally larger change in quantity demanded. Consumers are highly responsive to price variations, and a price decrease would result in a significant increase in total revenue.

A

Elastic Demand:

44
Q

If the Price Elasticity of Demand is less than 1, demand is ______. Here, changes in price cause proportionally smaller changes in quantity demanded. Consumers are less responsive to price fluctuations, and a price decrease would lead to a relatively smaller increase in total revenue.

A

Inelastic Demand:

45
Q

When the Price Elasticity of Demand is exactly 1, demand is ________. In this scenario, changes in price result in equal percentage changes in quantity demanded. Total revenue remains constant as price changes.

A

Unitary Elastic Demand:

46
Q

In economics, _________ and ___________are two fundamental concepts used by businesses to optimize production and pricing decisions. Understanding the distinction between these two concepts is crucial for firms aiming to achieve profit maximization and efficient resource allocation.

A

Marginal Revenue (MR) and Marginal Cost (MC)

47
Q

Significance of Marginal Revenue

Identifying appropriate production levels.

A

Production Optimization

48
Q

Significance of Marginal Revenue

Optimal price determination for revenue maximization.

A

Pricing Decisions

49
Q

Significance of Marginal Revenue

Assessing demand conditions and market power.

A

Market Analysis

50
Q

Significance of Marginal Revenue

Estimating revenue changes with output variations.

A

Revenue Forecasting

51
Q

Significance of Marginal Revenue

implementing differential pricing based on elasticity.

A

Price Discrimination Strategies

52
Q

refers to the sensitivity of the quantity demanded for a certain good to a change in the real income of consumers who buy this good.

The formula for calculating income elasticity of demand is the percent change in quantity demanded divided by the percent change in income. With income elasticity of demand, you can tell if a particular good represents a necessity or a luxury.

A

INCOME ELASTICITY OF DEMAND

53
Q

Significance of Price Elasticity of Demand

  • Pricing Strategies: Guiding pricing decisions for revenue optimization.
  • Revenue Forecasting: Predicting changes in total revenue based on elasticity.
  • Market Segmentation: Efficiently targeting customer groups with different elasticities.
  • Taxation and Subsidies: Assessing policy impact on consumer behavior and revenue.
  • Elasticity-Based Pricing: Implementing dynamic pricing strategies.
  • Demand Estimation: Estimating demand changes from price adjustments.
A
53
Q

note:

UNDERSTANDING INCOME ELASTICITY OF DEMAND
Income elasticity of demand measures the responsiveness of demand for a particular good to changes in consumer income.

The higher the income elasticity of demand for a particular good, the more demand for that good is tied to fluctuations in consumers’ income. Businesses typically evaluate the income elasticity of demand for their products to help predict the impact of a business cycle on product sales.

A
54
Q

Depending on the values of the income elasticity of demand, goods can be broadly categorized as _________ and ________. Normal goods have a positive income elasticity of demand; as incomes rise, more goods are demanded at each price level.

Normal goods whose income elasticity of demand is between zero and one are typically referred to as necessity goods, which are products and services that consumers will buy regardless of changes in their income levels. Examples of necessity goods and services include tobacco products, haircuts, water, and electricity.

A

inferior and normal goods

55
Q

Note:
Types of Income Elasticity of Demand

HIGH: A rise in income comes with bigger increases in the quantity demanded.

UNITARY: The rise in income is proportionate to the increase in the quantity demanded.

LOW: A jump in income is less than proportionate to the increase in the quantity demanded.

ZERO: The quantity bought/demanded is the same even if income changes

NEGATIVE: An increase in income comes with a decrease in the quantity demanded.

A
56
Q

The Bottom Line

Income elasticity of demand is the change in quantity demanded of a good or service in relation to the change in real income of a consumer that buys that good or service. It is a primary variable in the causes for price elasticity. Income elasticity of demand will denote whether a product is an essential item or a luxury item.

The higher the inelasticity of demand for a good or service, the more sensitive the demand for it is to fluctuations in consumer income. If a good or service has a high inelasticity of demand, it will experience a decline in demand when the real income of consumers decreases. If real income increases, it will see an increase in demand. If a good or service has a low inelasticity of demand, its demand will not significantly change regardless of what happens to the real income of consumers.

A

1st sem- 1BSA (27 decks)

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